China maintained its one-year prime lending rate on Tuesday but surprised markets by lowering the five-year rate by 25 basis points to 3.95%, according to a Tuesday statement from the People’s Bank of China.
Reuters had expected a cut of between 5 and 15 basis points in February. It was also the first since the last 10 basis point reduction in June.
Most new and outstanding loans in China are based on the one-year LPR rate, while the five-year rate influences the price of mortgages.
The onshore yuan (USD:CNY) fell in early trade to 7.2088 per dollar, down 0.03% from the previous close, while the benchmark Shanghai Composite and the blue-chip index also fell CSI 300. The yuan has gained 1.6% against the dollar this year.
The reduction in the five-year loan rate came after the People’s Bank of China (PBOC) held its medium-term policy rate at 2.5% on Sunday.