China cuts new loan rate for second month but struggling economy likely needs more
Many China watchers believe more forceful measures will be needed soon to avoid a sharper slowdown and get the economy back on an even keel.
The five-year benchmark rate, which is likely to be used for mortgages, was left unchanged at 4.85 percent.
While small, the latest cut signals to markets that policymakers remain open to further easing, some analysts said.
In long-awaited interest rate reforms, the PBOC designated the LPR as its benchmark for new loans last month to guide borrowing costs lower, though the previous benchmark lending rate will still apply to older loans for a while longer.
"The LPR is based on banks’ quotations. If there is no government intervention, it’s hard to believe banks are willing to lower their quotations, because corporate demand for loans is not weak at all," said Luo Yunfeng, an analyst at Merchants Securities in Beijing, noting that lower rates also mean smaller profit margins.
A more effective way to reduce borrowing costs would be for the PBOC to directly cut MLF rates, said Tang Jianwei, analyst at Bank of Communications (BoComm), saying "more loosening is highly necessary because the economy is sluggish."
"That will help stabilize market expectations, investment, consumption and will not put pressure on the exchange rate."Read more: ABS-CBN News
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