China has again lowered the mortgage reference rate to revive credit

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SHANGHAI – China on Friday slashed its benchmark reference rate for mortgages by an unexpectedly wide margin, the second cut this year to revive credit demand to boost Beijing’s economy.

Senior officials have vowed to take further action to combat the recession in the world’s second-largest economy, plagued by the COVID-19 outbreak that has led to stricter measures and mobility restrictions that have severely disrupted economic activity.

Many market participants believe Friday’s move was a response to Premier Li Keqiang’s call for decisive increase in policy coordination and an attempt to get the economy back on track quickly.

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China, in a monthly fixing, cut its five-year loan prime rate (LPR) by 15 basis points to 4.45%, the biggest decline since China restructured the process in 2019. One-year LPR was unchanged at 3.70%

LPR is a loan reference rate set monthly by 18 banks and announced by the People’s Bank of China. Banks use five-year LPR for mortgage rates, while most other loans are based on one-year rates. Both rates were cut in January to boost the economy.

Marco Sun, chief financial market analyst at MUFG Bank, said Friday’s cuts indicate that “China’s economic growth has faced increasing resistance this year.”

“The five-year lowering of LPR was an attempt to accelerate the recovery of the real estate sector,” Sun said, adding that authorities had been reluctant to cut rates for a year due to the recent significant liquidity situation in the banking system. One year LPR.

Eighteen traders and analysts, or 64% of the 28 participants, predicted a decline in both rates in a Reuters snap poll, with 12 respondents predicting a 5-basis-point cut for each tenor. (Reporting by Winnie the Pooh and Andrew Galbraith; Editing by Christopher Cushing and William Mallard)

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