China cuts mortgage rates for the first time in two years

China cut its benchmark mortgage rate for the first time in nearly two years, adding to a cycle of gradual monetary easing as policymakers seek to counter a loss of economic momentum. .

The prime rate for a five-year loan, commonly used to price mortgages, was lowered from 4.65% to 4.6% on Thursday. The one-year equivalent, which is widely used for other forms of lending, was cut from 3.8% to 3.7%, following an earlier decrease in December.

The measures are expected after the People’s Bank of China press conference on Tuesday, at which officials hinted at further easing amid the backdrop weak economy.

On Monday, the National Bureau of Statistics released data showing the slowest annual growth rate in nearly 18 months. The government is dealing with a significant slowdown in the country real estate sector and persistent weakness in consumption.

“These cuts are too small to have a significant impact, because they are not enough to relieve the real bottlenecks and because interest rates on the Existing mortgages will not be re-established this year.”

China cut several key rates in early 2020, in response to the economic impact from the initial coronavirus outbreak. Later that year, at a time of growing concern about asset bubbles, it introduced tightening measures to limit leverage on property developers.

A liquidity crisis in the real estate sector, surrounding the protracted default of Evergrande, the world’s most indebted developer, has hit home sales and put pressure on developers. policy making to support the economy.

The PBoC cut the reserve requirement ratio, a metric that affects bank lending, several times last year, but did not adjust the benchmark lending prime rate until December.

China markets were slightly volatile on Thursday, with the CSI 300 index of big stocks listed in Shanghai and Shenzhen up just 0.9%. Analysts attribute this in part to the PBoC cut its medium-term lending rate on Monday, acting as a floor for the LPR.

Bruce Pang, head of research at China Renaissance, said: “Today’s drop in LPR was expected and already priced in by the market.

Pang added that China’s shares fell following recent comments from top officials, who stopped short of promising more substantial easing even as Beijing grapples with some Covid outbreaks. -19 across the country.

“The PBoC may ease more, but not in the form of another rate cut in the near term unless there are lingering difficulties to China’s recovery,” Pang said.

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