©Reuters.
Investing.com– The People’s Bank of China unexpectedly cut its benchmark five-year lending rate on Tuesday, further easing monetary conditions in a bid to support the country’s slowing economic recovery.
The PBOC cut the rate used to determine mortgage rates from 4.10% to 3.95%, while it remained unchanged at 3.45%.
Tuesday’s move was somewhat unexpected, after the central bank kept medium-term lending rates unchanged over the weekend. But the steady worsening of economic conditions in China has led some investors to position themselves for further monetary easing in the country.
The LPR is determined by the PBOC based on considerations from 18 designated commercial banks and is used as a benchmark for lending rates in the country.
Tuesday’s move marks the PBOC’s first rate cut since August 2023 and takes the LPR further into record low territory. While the bank has remained largely hesitant to cut interest rates amid concerns about greater yuan weakness, steadily worsening economic conditions in China appear to have forced its hand.
The five-year LPR cut appears to be aimed largely at the struggling property market, which has been battered by a series of high-profile bankruptcies over the past two years as home sales dried up and house prices collapsed.
China’s economy grew just above expected in 2023 and grappled with a marked deflationary trend towards the end of the year. Economic activity data for January also showed few signs of improvement.
While Tuesday’s cut is expected to provide more monetary support to the economy, investors in recent months have called on Beijing for more targeted fiscal stimulus measures to support growth.