This undated photo shows a bank staff member counting 100-yuan banknotes at the Beijing Branch of the Bank of Communication in Beijing. (LI XIN / XINHUA)

SHANGHAI/BEIJING - China cut its benchmark lending rate as expected on Monday to reduce borrowing costs for companies and prop up the coronavirus-hit economy.

The one-year loan prime rate (LPR) was lowered by 20 basis points (bps) to 3.85 percent from 4.05 percent previously, while the five-year was cut by 10 bps to 4.65 percent from 4.75 percent, according to the National Interbank Funding Center.

The one-year loan prime rate (LPR) was lowered by 20 basis points (bps) to 3.85%, while the five-year was cut by 10 bps to 4.65%, according to the National Interbank Funding Center

The move was the second cut to the lending benchmark rate this year, and the latest reduction in one of China’s key lending rates. Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages.

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China's central bank announced a plan to reform the LPR mechanism in August 2019, to better reflect market changes in its latest move to guide borrowing costs lower to support the real economy.

Under the revamped mechanism, the LPRs, released on the 20th day of every month, are based on rates of the central bank's open market operations, especially the medium-term lending facility (MLF) rates.

The People's Bank of China (PBOC) lowered the rate of 100 billion yuan (about US$14.15 billion) worth of one-year MLF to financial institutions by 20 basis points to 2.95 percent amid a slew of monetary policy maneuvers to mitigate impact of COVID-19 on the world's second largest economy.

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The first new one-year LPR, released on Aug 20 last year, stood at 4.25 percent, 10 basis points lower than the central bank benchmark lending rate, while the first new above-five-year LPR was slightly lower than the 4.9-percent central bank benchmark rate.