China’s central bank cut interest rates on Monday to boost an economy battered by the government’s strict zero-Covid policy and a slump in the housing market.
The world’s second-biggest economy saw improvement after some coronavirus restrictions were eased in June, but consumer and business sentiment remains weaker than usual.
The one-year loan prime rate, which serves as a benchmark for corporate loans, was cut to 3.65 percent from 3.7 percent, the People’s Bank of China (PBOC) said in a statement.
The five-year LPR, used to price mortgages, was cut from 4.45 percent to 4.3 percent, he added.
The PBOC cut interest rates last week, taking its seven-day reverse repo rate – a policy rate at which it provides short-term liquidity to banks – to a new low.
Analysts had expected cuts in LPR rates but said they may not be enough to bail out the property sector – which is estimated to account for up to a quarter of China’s GDP.
“The much larger cut in the five-year interest rate suggests the PBOC is particularly concerned about the problems in the housing market,” Capital Economics said in a statement Monday.
“However, homebuyers with existing mortgages will have to wait until early next year for the change to affect them.”
China’s housing market was rocked by frustrated homebuyers in dozens of cities who boycotted mortgage payments as cash-strapped developers struggled to finish pre-sold units.
With real estate companies struggling to deal with mountains of debt, concerns have been raised since last year that the sector’s problems could spill over into the rest of the economy.
“Most home mortgages are linked to the prime (five-year) lending rate. So this rate cut is obviously to ease the burden on borrowers,” said Iris Pang, chief economist for Greater China at ING, in a statement.
“If the market sees progress in building uncompleted projects, we could see an improvement in home buying sentiment and home prices should stabilize.”
China’s economic growth in the second quarter was just 0.4 percent year on year – the lowest rate since the start of the Covid crisis in 2020.
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