China’s central bank unexpectedly lowered its lending rates for long-term loans, a move that is set to prop up lending to the property market.
The five-year loan prime rate, or LPR, the benchmark for mortgage rates, was lowered by a record 15 basis points to 4.45 percent from 4.60 percent, the People’s Bank of China said Friday. This was the second reduction this year.
At the same time, the one-year LPR was retained at 3.70 percent. The previous change in this rate was a five basis points cut in January.
The reduction in the five-year LPR was unexpected as the medium-term lending facility rate, the forerunner of LPR, was kept unchanged earlier this month.
The cut in LPR came after the floor on mortgage rates for first-time buyers were reduced over the weekend.
The LPR is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.
The combination of lower mortgage rates and reduced downpayment requirements lay the groundwork for a revival in housing demand, economists at Capital Economics said.
“The lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted and that we shouldn’t expect large-scale stimulus of the kind that we saw in 2020,” they added.
Official data earlier showed that bank lending declined sharply in April as Covid lockdowns disrupted economic activity. Banks extended CNY 645.4 billion in new yuan loans in April.
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