China cuts one-year loan prime rate

File photo shows the headquarters of the People's Bank of China in Beijing, capital of China. (Xinhua/Cai Yang)

BEIJING, Dec. 20 (Xinhua) -- China on Monday lowered its one-year loan prime rate (LPR) for the first time in 20 months, a step for the country to further bolster the real economy.

The one-year LPR, a market-based benchmark lending rate, came in at 3.8 percent in December, down from 3.85 percent a month earlier, said the National Interbank Funding Center (NIFC).

The over-five-year LPR, which many lenders base their mortgage rates on, remained unchanged from the previous reading of 4.65 percent.

Lowering one-year LPR will help financial institutions further reduce the financing cost of the real economy, said Wen Bin, chief analyst at China Minsheng Bank.

Meanwhile, keeping the five-year LPR unchanged would help maintain the steady and sound development of the real estate market, Wen said.

To ease the downward pressure on the real economy, China recently announced a cut in the reserve requirement ratio (RRR) for financial institutions.

The reduction injected a total of 1.2 trillion yuan (about 187.7 billion U.S. dollars) in long-term funds into the economy.

The recent RRR cut made long-term, low-cost funding available to financial institutions, which provided favorable conditions for the LPR reduction, said Dong Ximiao, chief researcher with Merchants Union Consumer Finance Company Limited.

The mild adjustment followed the central bank's prudent monetary policy for steady economic progress while helping lower loan interest rates, said Dong.

Wang Qing, a chief macroeconomy analyst with Golden Credit Rating International, said the LPR cut would ease the pressure of raw-material price hikes for enterprises and bolster their credit demand.

China will continue implementing proactive fiscal policies and prudent monetary policies for steady economic progress next year, said the annual Central Economic Work Conference recently held in Beijing.

Prudent monetary policies should be flexible and appropriate, and liquidity should be at a reasonable and ample level, the meeting said.

Based on bank quotes calculated by adding a few basis points to the interest rate of open market operations, mainly referring to the medium-term lending facility rate, the LPR is calculated by the NIFC to serve as a pricing reference for bank lending. The LPR currently consists of rates with two maturities -- one year and over five years.

The quoting banks submit their figures before 9 a.m. on the 20th day of every month. The NIFC calculates and releases the LPR at 9:30 a.m. on the same day or the next day.