Anjali Sharma
GG News Bureau
WASHINGTON DC, 22nd Feb. According to media reports on Wednesday the China central bank has cut its key mortgage reference rate by a record amount, to boost efforts to stem a prolonged property crisis.
The 25 basis point cut to the five-year LPR is the biggest reduction the central bank has made since it revamped its LPR system in 2019.
The People’s Bank of China announced that it would cut its five-year loan prime rate (LPR) from 4.2 per cent to 3.95 per cent, while keeping the one-year LPR unchanged at 3.45 per cent.
LPR is the rate at which commercial banks lend to their best customers. The five-year rate usually serves as a reference for mortgages, the report said
Analysts from Capital Economics said in a note that “Today’s 25 (basis point) cut to the five-year LPR is clearly aimed at supporting the housing market,”.
“On its own, it will not revive new home sales. But coupled with efforts to provide increased credit support to the developers, today’s cut should help to reduce pressure on the property sector somewhat,” they said, as per the report.
China’s economy has been hobbled by a real-estate downturn since 2021, when a government crackdown on developers’ borrowing triggered a liquidity crisis in the sector.
The property market has since entered a prolonged slump, marked by an ongoing decline in both investment and sales of property.
Dozens of major developers have defaulted on their debt, with Evergrande, once the country’s second largest homebuilder, ordered to liquidate last month, the news media reports added.
