China’s central bank cut its benchmark lending rate on Monday to boost the economy.
China, the world’s second largest economy, saw some improvement after easing some coronavirus restrictions in June, but consumer and business sentiment remains weaker than usual.
The People’s Bank of China (PBOC) said in a statement that it had lowered its benchmark one-year loan prime rate for corporate lending from 3.7% to 3.65%.
The 5-year LPR, which is used to price mortgages, was cut to 4.3% from 4.45%, he added.
The PBOC cut key interest rates last week, cutting the 7-day reverse repo rate, the key rate that provides short-term liquidity to banks, to new lows.
Analysts had expected a cut in the LPR rate, but said it might not be enough to bail out the property sector, which is estimated to account for a quarter of China’s GDP.
“A sharp cut in the 5-year rate suggests the PBOC is particularly concerned about housing market problems,” Capital Economics said in a report on Wednesday.
“But homebuyers with existing mortgages will have to wait until early next year for the changes to affect them.”
China’s housing market was rocked by disgruntled homebuyers in dozens of cities who boycotted mortgage payments as cash-strapped developers struggled to finish pre-sold units.
“Most mortgages are linked to the prime rate of the (five-year) loan, so the rate cut is clearly to ease the burden on borrowers,” said ING’s Greater China representative. Chief Economist Iris Pang said in a report.
“If the market makes progress in building unfinished projects, it should improve home buying sentiment and stabilize home prices.”
China’s economy grew just 0.4% in the second quarter compared to the same period last year. This is the slowest rate since his Covid pandemic began in 2020.
