The 25 bps cut to the five-year LPR was the biggest since the reference rate was introduced in 2019 and far more than analysts had expected
China announced its biggest ever cut in the benchmark mortgage rate on Tuesday, as authorities sought to prop up the struggling property market and the wider economy.
The 25 bps cut to the five-year loan prime rate (LPR) was the biggest since the reference rate was introduced in 2019 and far more than analysts had expected.
This is the biggest signal. In other words, the biggest interest rate cut cycle in history has begun, said Yan Yuejin, analyst at E-House China Research and Development Institution. The cut will directly impact the real estate sector by reducing mortgage costs, he added.
The five-year loan prime rate (LPR) was reduced by 25 bps to 3.95% from 4.20% earlier, while the one-year LPR was left unchanged at 3.45%.
Most new and outstanding loans in China are based on the one-year loan prime rate, while the five-year rate influences the pricing of mortgages.
In a Reuters poll of 27 market watchers conducted this week, 25 expected a reduction to the five-year loan prime rate. They projected a cut of five to 15 bps.
The yuan dropped to its lowest since November 20 but has since cut losses while property stocks gained.
China last cut the five-year loan prime rate in June 2023 by 10 bps.
Beijing has stepped up efforts to rescue the struggling property sector, but the measures have come in fits and starts, weighing heavily on a sector that drives a quarter of the economy and on the stock market. New home prices saw their worst drops in nine years in 2023, while the stock market is languishing after reaching five-year lows.
The media last week reported that state banks have boosted lending to residential projects under the “white list” mechanism aimed at injecting liquidity into the ailing sector.
