Sunday 20 October 2024

China cuts key mortgage rate

According to South China Morning Post, China announced on Monday it had slashed a key reference rate for mortgage loans by a quarter of a percentage point, as the country stepped up efforts to stabilize the property market.

The benchmark five-year loan prime rate (LPR) was lowered to 3.6% from 3.85%, while the one-year lending rate was also cut to 3.1% from 3.35%.

For Chinese households with mortgage loans of 1 million yuan (US$140,000), the monthly instalment payment would be reduced by around 141.5 yuan (US$19.9) after the cut to the five-year LPR.

The move was expected as central bank governor Pan Gongsheng had said at a financial forum on Friday that lending rates would decrease by between 20 to 25 basis points.

The rates were last cut in July.

“The rate cut is broadly in line with market expectations,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

“It is an encouraging sign that the monetary policy is moving in the right direction to fight deflation.”

The move came as Beijing has taken an all-out effort to drive up the struggling property market.

Speaking at a press conference on Thursday, the housing ministry said it would double the credit to white list property projects to 4 trillion yuan by the end of the year and renovate 1 million units in urban villages.

“The monetary policy has clearly shifted to a more supportive stance since the press conference on September 24. The real interest rate in China is too high,” Zhang added.

Analysts expected more rate cuts in the coming quarters, after Pan indicated on Friday plans to further cut the reserve requirement ratio – the amount of cash that commercial banks must hold as reserve – for banks.

“But this is unlikely to boost loan demand much,” said Huang Zichun, an economist at Capital Economics, who noted weak credit demand as the main constraint.

“And without a rebound in inflation, which we don’t foresee, real lending rates will remain restrictive unless policy rates are cut by a lot more.

“The heavy lifting will need to come from fiscal policy.”

 

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