China boosts real estate financing with first cut in benchmark lending rate since June

A staff member counts Chinese yuan in the personal finance service area of ​​a bank in Haian, east China’s Jiangsu Province, September 15, 2023.

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Chinese lenders cut the country’s benchmark five-year loan rate for the first time since June, extending Beijing’s efforts to revive the country’s anemic property market.

China’s central bank kept its one-year prime lending rate, the anchor for most loans to households and businesses in China, unchanged at 3.45%. The benchmark five-year loan rate – the anchor for most mortgages – was cut by 25 basis points to 3.95%, according to a statement Tuesday from the People’s Bank of China.

The five-year rate cut in the monthly fix for February was larger than expectations of a reduction of between 5 and 15 basis points in a Reuters poll of economists. It was also the first since the last 10 basis point reduction in June.

“The asymmetric moves signal the authorities’ continued preference for targeted easing and its desire to increase support for the housing sector,” said Louise Loo, chief economist at Oxford Economics. “The scale of today’s move also reveals, in our view, a real concern among policymakers in Beijing that the slow incremental trickle of policy easing implemented so far has had little impact.”

“But China’s housing problem is ultimately not mortgage-related. Today’s move may stimulate demand at the margins, but it needs to be implemented and seen in the context of a broader range of measures to manage an inevitable property correction process “Loo added.

China calculates benchmark lending rates every month after 20 designated commercial lenders submit their rate proposals to the PBOC. These benchmark lending rates usually move in lockstep with the medium-term policy rate, which the PBOC on Sunday kept unchanged for February.

China cut reserve requirements for its banks by 50 basis points from February 5, providing 1 trillion yuan ($139.8 billion) in long-term capital, urging banks to support lending to real estate developers high quality.

The property market slumped after Beijing cracked down on developers’ high reliance on debt for growth in 2020, trapping some of its biggest property developers in bankruptcy and weighing on consumption growth and broader growth in the world’s second-largest economy.

— CNBC’s Lee Ying Shan contributed to this story.

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