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