Chinese banks made a smaller-than-expected cut to their benchmark lending rate on Monday and avoided trimming the reference rate for mortgages. 

The one-year loan prime rate was lowered by 10 basis points to 3.45% from 3.55%. Most of the economists surveyed by Bloomberg had forecast a 15 basis-point reduction.

The five-year rate, a reference for mortgages, was unexpectedly kept steady at 4.2%, according to data from the People's Bank of China. Most economists had predicted a 15 basis-point cut.

"This is a surprising result, showing that banks are not well prepared. We believe the cuts will continue in the next few months," said Zhaopeng Xing, senior China strategist, Australia & New Zealand Banking Group Ltd.

The loan rates are based on one of the PBOC's key policy interest rates, which was cut by the most since 2020 in a surprise move last week. The central bank has signaled more monetary easing is on the cards as the economy continues to weaken and a property crisis worsens.

Recent economic data showed a slump in borrowing demand, deflation pressure and falling export orders in July, prompting several banks to cut their growth forecasts for the year to below 5%. Investors are also concerned about contagion risks following a liquidity crisis at a major shadow bank. 

The central bank and financial regulators met recently with bank executives and told lenders again to boost loans to support a recovery -- yet another sign of how concerned policymakers have growth about the deteriorating economic outlook. 

Many economists expect the PBOC to reduce the reserve requirement ratio for banks and further trim interest rates in coming months.

The LPRs are based on the interest rates that 18 banks offer their best customers, and are published by the PBOC monthly. They are quoted as a spread over the central bank's one-year policy rate, or the medium-term lending facility rate, which was cut by 15 basis points earlier this month.

Source : Bloomber