China Slashes Mortgage Lending Rate To Support Property Funding

(RTTNews) - China lowered its longer-term benchmark lending rate at a slightly sharper than expected pace on Tuesday, in an attempt to support the ailing housing market.

The People's Bank of China cut its five-year loan prime rate, the benchmark for mortgage rates, to a record low 3.95 percent from 4.20 percent. The bank was expected to lower the rate to 4.10 percent. The one-year LPR was left unchanged at 3.45 percent.

The five-year LPR was cut by 10 basis points in June and one-year LPR was cut by similar 10 basis points in August.

The Chinese central bank fixes the LPR monthly based on the submission of 18 designated banks. However, Beijing has influence over the fixing.

The LPR replaced the traditional benchmark lending rate in August 2019.

The latest reduction on its own will not revive new home sales but coupled with efforts to provide increased credit support to developers should help to reduce pressure on the property sector somewhat, said economists at Capital Economics.

"The bigger picture though is that the PBOC remains reluctant to embrace the sizable and broad-based rate cuts needed to drive a strong acceleration in credit growth and therefore economic activity," they added.

The medium-term lending facility is considered as a guide to loan prime rates. The central bank had kept the MLF unchanged at 2.50 percent earlier this week.

Despite maintaining a status quo on the MLF, markets widely anticipated a reduction in LPR today.

In January, the PBoC had reduced the reserve requirement ratio by 50 basis points, which is expected to inject around CNY 1 trillion of long-term liquidity.