China lowers mortgage rate to boost housing market and economy

China lowers mortgage rate to boost housing market and economy

China has cut its mortgage reference rate for the first time since June 2023, in a move to stimulate the sluggish housing market and support the slowing economy. The five-year loan prime rate (LPR), which affects the pricing of mortgages, was reduced by 10 basis points to 4.10% on Tuesday, following a survey of 20 commercial banks by the People’s Bank of China (PBOC).

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The one-year LPR, which is the basis for most new and outstanding loans, was also lowered by 5 basis points to 3.40%, marking the third cut in the past year. The PBOC said the adjustments were aimed at “improving the efficiency of monetary policy transmission and promoting the healthy development of the real economy.”

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The mortgage rate cut came after the PBOC kept the medium-term lending facility (MLF) rate unchanged on Sunday, despite injecting 100 billion yuan ($15.5 billion) into the banking system. The MLF rate is the main reference for the LPR, and analysts said the PBOC’s decision to maintain it reflected the uncertainties over the US Federal Reserve’s policy stance and the risks of capital outflows and currency depreciation.

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However, the PBOC also lowered the reserve requirement ratio (RRR) for most banks by 50 basis points on February 1, freeing up about 800 billion yuan ($124 billion) of liquidity. The RRR cut, along with the recent declines in deposit rates by major lenders, gave the PBOC more room to lower the LPR and ease the financing costs for households and businesses.
The mortgage rate cut is expected to boost the demand for housing, which has been dampened by the government’s tightening measures to curb speculation and debt. The housing market is a key driver of the Chinese economy, accounting for about a quarter of the gross domestic product and affecting various related sectors, such as construction, furniture and appliances.
A China yuan note is seen in this illustration photo May 31, 2017

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The PBOC said it would continue to implement a prudent monetary policy and maintain a reasonable and sufficient liquidity. It also said it would guide the market interest rates to operate in a reasonable range and support the high-quality development and structural adjustment of the economy.

Source : REUTERS

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