Five-year LPR down 5 Basis Points, First Time in 20 Months

SHANGHAI, Jan 20 - The loan prime rate (LPR) for January 2022 released by the National Inter-bank Lending Center on Thursday showed 5 basis points cut in the 5-year LPR to 4.6%, the first cut since April 2020. In addition, the 1-year LPR was cut by a further 10bp to 3.7%, following a 5bp cut in December last year.

Industry insiders believe that, as the property market and market sentiment are both repairing, this moderate reduction in the 5-year LPR will revive the supply and consumption ends of the real estate market. Meanwhile, it will also reduce the medium and long-term corporate financing costs, thus boosting the financing enthusiasm of the real economy, such as manufacturing.

Concerning the monetary policy outlook, there are views that the central bank may still take the next step to lower the RRR or interest rates combined with structural polies to facilitate social financing, RMB loans and other credit indicators.

Market participants pointed out that the fundamental reason triggering this LPR cut was to boost the medium and long-term credit demand of domestic enterprises, with the central bank's December financial data showing that new medium and long-term loans to enterprises accounted for only 51% of total new credit, down from 92% in the same period in 2020 and 60% in November 2021, and had been on the downside for five consecutive months.