China cuts lending rate for second month

China has cut its one-year ending rate for the second month in a row as the Sino-US trade war drags.
China has cut its one-year ending rate for the second month in a row as the Sino-US trade war drags.

China has cut its new one-year benchmark lending rate for the second month in a row, a step by the central bank to try to wrestle down borrowing costs and support the economy as the Sino-US trade war drags on.

But the move was far more cautious than easing by the US Federal Reserve and the European Central Bank over the past week, suggesting Chinese policymakers remain reluctant to join a global stimulus wave due to worries about mounting debt.

Still, analysts say Beijing's restraint is being put to the test, as worsening economic data in August has raised fears that third-quarter growth could slip below 6 per cent, breaching the lower end of the government's 2019 target.

As widely expected, China's new Loan Prime Rate (LPR) -- for banks' best customers -- was cut 5 basis points (bps) at Friday's monthly fixing to 4.2 per cent, the second time it has been trimmed since it was revamped in August, and days after the central bank's latest reduction in banks' reserve requirements (RRR) took effect.

Total reductions in the rate so far, at 11 bps, are less than half of the Fed's quarter-point rate cut on Thursday, which some analysts say reflects policymakers' concerns that lower rates could lead to property bubbles and add to financial risks.

The five-year benchmark rate was left unchanged at 4.85 per cent.

While small, the latest cut signals to markets that policymakers remain open to further easing, some analysts said.

China's central bank has been struggling to bring down financing costs for years, particularly for small, private companies which generate a large share of country's economic activity and jobs. But such firms are considered bigger credit risks, and banks have long favoured state-backed enterprises.

Iris Pang, Greater China economist for ING in Hong Kong, said Friday's rate move "is not a growth-stimulation story, I think it is more a protection story, to not fall into a weaker growth range. Growth has been very weak and this is more for lowering interest costs for production and infrastructure."

Wen Bin, an economist at Minsheng Bank in Beijing, said China needs to cut interest rates further, and by the same margin as the Fed.

Australian Associated Press