SHANGHAI/SINGAPORE (Reuters) -&nbsp;China&nbsp;cut its key&nbsp;lending&nbsp;benchmarks&nbsp;on Tuesday, the first such reductions in 10 months as authorities seek to shore up a&nbsp;slowing&nbsp;economic recovery, although concerns about the property market meant the easing was not as large as expected.
The latest monetary loosening comes as a post-pandemic recovery in the world's second-largest economy shows signs of losing the initial momentum seen in the first quarter.
The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.55%, while the five-year LPR was cut by the same margin to 4.20%.
While all 32 participants in a Reuters poll had expected reductions to both rates, the cut to the five-year rate was smaller than many expected.
"These&nbsp;cuts&nbsp;will lower the cost of new loans, as well as interest payments on existing loans," said Julian Evans-Pritchard, head of&nbsp;China&nbsp;economics at Capital Economics.
"That should offer some modest support to economic activity. But we think it is unlikely to drive a sharp acceleration in credit growth, given weak credit&nbsp;demand."
The smaller-than expected cut disappointed investors with the Hang Seng Mainland Properties Index dropping 3.61%, outpacing a fall in the benchmark Hang Seng Index. The Chinese currency lost as much as 0.25% and broader Asian stocks markets also dipped.
The People's Bank of&nbsp;China&nbsp;(PBOC) lowered short- and medium-term policy rates last week.
The medium-term&nbsp;lending&nbsp;facility (MLF) rate serves as a guide to the LPR and markets mostly see the medium-term rate as a precursor to any changes to longer-term&nbsp;lending&nbsp;benchmarks.
Xing Zhaopeng, senior&nbsp;China&nbsp;strategist at ANZ, said the smaller-than-expected cut to five-year tenor suggests authorities are wary of using the property market as a form of short-term stimulus, which could create new bubble risks.
"It shows that the policy still gives priority to the new economy, and it will only ensure a soft landing of the old economy rather than re-stimulation," Xing said.
Xing added that new stimulus could combine short-term measures and long-term reforms, with more details and measures to be announced in coming weeks.
China's cabinet met on Friday to discuss measures to spur growth in the economy and pledged more policy support.
"More policy measures may be rolled out separately, including but not limited to a 25 basis point cumulative cut to the LPR by the year-end, and property-easing measures to cut payment ratios or mortgage rates, as well as some form of consumption support," analysts at BofA global research said in a note.
"Such marginal easing will probably help prevent growth from&nbsp;slowing&nbsp;sharply, but will unlikely offer a strong boost to reverse the growth slippage in the near future," they said, downgrading their forecasts for&nbsp;China's economic growth outlook for this year to 5.7% from 6.3% previously.
Several global investment banks cut their 2023 gross domestic product growth forecasts for&nbsp;China&nbsp;after May data showed the recovery was faltering.
"There is still a possibility of further interest rate&nbsp;cuts&nbsp;and reserve requirement ratio (RRR)&nbsp;cuts&nbsp;in the remainder of this year," said Bruce Pang, chief economist and head of research for Greater&nbsp;China&nbsp;at Jones Lang LaSalle.
"There is no need to roll out all policy measures all at once."
The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the central bank every month.
Most new and outstanding loans in&nbsp;China&nbsp;are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.&nbsp;China&nbsp;last cut both LPRs in August 2022 to boost the economy.
&nbsp;
(Reporting by Winni Zhou and Tom Westbrook; Graphics by Kripa Jayaram; Editing by Sam Holmes)

you might like

China cuts lending benchmarks to revive slowing demand