THE central bank cut the country’s new one-year benchmark lending rate for the second month in a row Friday, a step by the central bank to try to wrestle down borrowing costs and support the economy as the Sino-U.S. trade war drags on.

But the move was far more cautious than easing by the U.S. Federal Reserve and the European Central Bank over the past week, suggesting Chinese policymakers remain reluctant to join a global stimulus wave due to worries about debt.

As widely expected, China’s new Loan Prime Rate (LPR) — for banks’ best customers — was cut 5 basis points (bps) at Friday’s monthly fixing to 4.2 percent, the second time it has been trimmed since it was revamped in August, and days after the central bank’s latest reduction in banks’ reserve requirements (RRR) took effect.

Total reductions in the rate so far, at 11 bps, are less than half of the Fed’s quarter-point rate cut Thursday, which some analysts say reflects policymakers’ concerns that lower rates could lead to property bubbles and add to financial risks.

The five-year benchmark rate, which is likely to be used for mortgages, was left unchanged at 4.85 percent.

“Since the new rate is relatively untested, the People’s Bank of China appears to be taking a measured approach at first,” Julian Evans-Pritchard, senior economist at Capital Economics, said in a note.

“However, with economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pickup in credit growth, we think the central bank will need to start engineering larger declines before long.”

Small, the latest cut signals to markets that policymakers remain open to further easing, some analysts said.

China’s central bank has been trying to bring down financing costs for years, particularly for small, private companies which generate a large share of country’s economic activity and jobs. But such firms are considered bigger credit risks, and banks have long favored State enterprises.

In long-awaited interest rate reforms, the central bank designated the LPR as its benchmark for new loans last month to guide borrowing costs lower, though the previous benchmark lending rate will still apply to older loans for a while longer.

The new reference rate is set by 18 banks, and is loosely pegged to the rate on the central bank’s medium-term lending facility (MLF), now at 3.3 percent.

(SD-Agencies)