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.<\/p>\n
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.<\/p>\n
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. <\/p>\n
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. <\/p>\n
The cut in LPR came after the floor on mortgage rates for first-time buyers were reduced over the weekend.<\/p>\n
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.<\/p>\n
The combination of lower mortgage rates and reduced downpayment requirements lay the groundwork for a revival in housing demand, economists at Capital Economics said.<\/p>\n
“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. <\/p>\n
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. <\/p>\n