SHANGHAI/SINGAPORE (Reuters) - China cut its key lending benchmarks on Tuesday, the first such reductions in 10 months as authorities seek to shore up a slowing economic recovery, although concerns about the property market meant the easing was not as large as expected.
The latest monetary loosening comes as a post-pandemic recovery in the world's second-largest economy shows signs of losing the initial momentum seen in the first quarter.
The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.55%, while the five-year LPR was cut by the same margin to 4.20%.
While all 32 participants in a Reuters poll had expected reductions to both rates, the cut to the five-year rate was smaller than many expected.
"These cuts will lower the cost of new loans, as well as interest payments on existing loans," said Julian Evans-Pritchard, head of China economics at Capital Economics.
"That should offer some modest support to economic activity. But we think it is unlikely to drive a sharp acceleration in credit growth, given weak credit demand."
The smaller-than expected cut disappointed investors with the Hang Seng Mainland Properties Index dropping 3.61%, outpacing a fall in the benchmark Hang Seng Index. The Chinese currency lost as much as 0.25% and broader Asian stocks markets also dipped.
The People's Bank of China (PBOC) lowered short- and medium-term policy rates last week.
The medium-term lending facility (MLF) rate serves as a guide to the LPR and markets mostly see the medium-term rate as a precursor to any changes to longer-term lending benchmarks.
Xing Zhaopeng, senior China strategist at ANZ, said the smaller-than-expected cut to five-year tenor suggests authorities are wary of using the property market as a form of short-term stimulus, which could create new bubble risks.
"It shows that the policy still gives priority to the new economy, and it will only ensure a soft landing of the old economy rather than re-stimulation," Xing said.
Xing added that new stimulus could combine short-term measures and long-term reforms, with more details and measures to be announced in coming weeks.
China's cabinet met on Friday to discuss measures to spur growth in the economy and pledged more policy support.
"More policy measures may be rolled out separately, including but not limited to a 25 basis point cumulative cut to the LPR by the year-end, and property-easing measures to cut payment ratios or mortgage rates, as well as some form of consumption support," analysts at BofA global research said in a note.