© Reuters. FILE PHOTO: People wearing face masks walk past the headquarters of Chinese central bank People’s Bank of China (PBOC), April 4, 2020. REUTERS/Tingshu Wang/File Photo

BEIJING (Reuters) – China’s central bank will cut the rates on its relending facility by 25 basis points (bps) to support the rural sector and small firms, effective from Dec. 7, state-run Securities Times reported on Tuesday, citing sources.

But the chance of a cut in the benchmark lending rate remain low in the near term, analysts said.

The three-month relending rate will be cut to 1.7%, while the six-month rate will be cut to 1.9% and the one-year rate will be lowered to 2%, the newspaper reported.

A banking source confirmed the rate cut to Reuters.

“Today’s loans are based on the new interest rate. The rate cut should be in line with the RRR reduction, and they are measures to support the real economy,” the source told Reuters.

In July 2020, the central bank cut the re-discount and relending rates by 25 basis points for small firms and the rural sector.

Investors are closely watching to see if the central bank will cut its benchmark lending rate, or loan prime rate (LPR), in the coming months, after it said on Monday it would cut banks’ reserve requirement ratios from Dec. 15.

The world’s second-largest economy faces multiple headwinds heading into 2022, due to a property downturn and strict COVID-19 curbs that have impeded consumption.

“We believe Beijing may have to step up significantly its policy easing measures, including dialing back some property curbs in spring 2022 to prevent a hard landing,” Ting Lu, chief China economist at Nomura, said in a note.

“We may see another 50 bp RRR cut in H1 2022, but still view the likelihood of a policy rate cut as quite small, due to elevated PPI inflation and rising CPI inflation.”

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