(Yicai Global) Aug. 22 -- China lowered its loan prime rate, the country’s benchmark lending rate to which mortgages, corporate loans and fixed-asset investments are anchored, today in order to boost a flagging economy. More supportive monetary and fiscal policies can be expected, analysts said.

The one-year LPR was trimmed five bps to 3.65 percent and that of the five-year LPR 15 bps to 4.3 percent, according to the National Interbank Funding Center. It is the third such cut this year. Altogether the one-year LPR has been reduced by 15 bps this year, and the five-year LPR by 35 bps.

The cuts are not unexpected. Last week the People’s Bank of China slashed the interest rates of one-year medium-term lending facility loans and seven-day reverse repurchase operations by 0.1 percentage point to 2.75 percent and 2 percent, respectively.

In face of the current grim economic situation, this is likely just the beginning and the issuance of more supportive policies in the fields of currency, finance and real estate is to be anticipated, said Ming Ming, chief economist at Citic Securities.

The fact that the long-term LPR was reduced by more than the short-term one delivers the message that the key purpose of these rate cuts is to stabilize the real estate market, Wang Qing, chief macro analyst at Golden Credit Rating, told Yicai Global.

The State Council had said earlier that LPRs are to play a guiding role in supporting a pick-up in demand for financing as well as reducing companies’ financing costs and individuals’ borrowing expenses.

The downward revision of the five-year LPR will bring the interest rates on corporate loans down, greatly reducing the financing costs of businesses, said Ming. By keeping the short-term LPR at a certain level, it will prevent firms from practising arbitrage between short-term loans and longer-term fixed deposits, he added.

There is still huge downward pressure on the economy, especially as the crisis in the property market deepens, market insiders said. It is hard to say if this round of monetary loosening will now end, but the future direction of monetary policy will call for close observation between targeting economic fundamentals and monitoring changes in the real estate market.

Editor: Kim Taylor