China surprises with modest rate cut amid growing yuan risks

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China surprises with modest rate cut amid growing yuan risks
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SHANGHAI/SINGAPORE (Reuters) -China cut its one-year benchmark lending rate on Monday as authorities seek to ramp up efforts to stimulate credit demand, ...

STORY CONTINUES BELOW THESE SALTWIRE VIDEOSSHANGHAI/SINGAPORE -China cut its one-year benchmark lending rate on Monday as authorities seek to ramp up efforts to stimulate credit demand, but surprised markets by keeping the five-year rate unchanged amid broader concerns about a rapidly weakening currency.

The one-year loan prime rate was lowered by 10 basis points to 3.45% from 3.55% previously, while the five-year LPR was left at 4.20%. The onshore yuan eased in early trade to 7.3078 per dollar, compared with the previous close of 7.2855, while benchmark Shanghai Composite index and the blue-chip CSI 300 index also declined.

The medium-term lending facility rate serves as a guide to the LPR and is widely read by markets as a precursor to future changes to the lending benchmarks. "We interpret the status quo of five-year LPR was a signal that the Chinese banks are reluctant to cut rates at the expense of rate differential margin," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

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