China cut benchmark lending rates by 25 basis points

China cut its key benchmark lending rate by 25 basis points on Monday in a monthly fix.

The People's Bank of China (PBOC) said the one-year loan prime rate (LPR) was cut to 3.1%, while the five-year LPR was cut to 3.6%.

The one-year LPR affects corporate loans and most household loans in China, while the five-year LPR serves as the benchmark for mortgage rates.

The move was expected. China's central bank governor Pan Gongsheng indicated during a forum in Beijing on Friday that the prime benchmark lending rate would be cut by 20 to 25 basis points.

During the forum, Pan also said banks' cash holdings, also known as reserve requirement ratio or RRR, could be cut by another 25 to 50 basis points by the end of the year, depending on the liquidity situation.

The seven-day reverse repurchase rate will be cut by 20 basis points, while the medium-term lending facility rate will be cut by 30 basis points, Pan also highlighted.

Shane Oliver, head of investment strategy and chief economist at AMP, said that while the cut in prime lending rates is expected, it confirms that fiscal stimulus is at least “happening on a significant basis in China”. However, he noted that the cuts alone were insufficient to boost the country's economy, echoing growing calls for more fiscal stimulus.

“The cost of money, the supply of money, is not the real problem in China. The real problem is the lack of demand, and that's why I think fiscal stimulus is so important,” he added.

Despite recent cuts, real interest rates in China are still “very high,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. “I expect more rate cuts next year as the Fed lowers rates.”

Last month, China's central bank trimmed its reserve requirement ratio by 50 basis points. The move comes as the PBOC unveils a blitz of support measures aimed at the world's second-largest economy, which is grappling with a lingering property crisis and weak consumer sentiment.

China surprised markets by cutting its key short- and long-term lending rates in July.

Last week, China reported slightly better-than-expected third-quarter GDP growth of 4.6% year-on-year. Additional data released on Friday, including retail sales and industrial production for September, also beat expectations, a hopeful sign for the nation's flagship economy.

—CNBC's Evelyn Cheng contributed to this report.