Pedestrians walk past the People’s Bank of China headquarters in Beijing, China.
Julia Marchi | Bloomberg | Getty Images
China’s central bank lowered its key lending rates again on Thursday amid concerns about an economic slowdown in the world’s second-largest economy.
The People’s Bank of China reduced the prime rate for one-year loans by 10 basis points from 3.8% to 3.7%. In December, the PBOC lowered the one-year loan prime rate for the first time since April 2020.
The five-year prime lending rate was cut 5 basis points from 4.65% to 4.6% – the first cut since April 2020, at the height of the coronavirus pandemic in the country.
Preferential lending rates affect business and household lending rates in the country.
Most new and existing loans in China are based on the one-year LPR, but the five-year rate influences mortgage pricing, according to Reuters. A Reuters snap poll had shown most participants expected China to cut both lending rates on Thursday.
The rate cuts continue the PBOC’s efforts to lower borrowing costs, according to Capital Economics.
“Mortgage loans will now be slightly cheaper, which should help support housing demand. The PBOC has already pushed banks to increase the volume of mortgage loans,” said Sheana Yue, China economist at the firm, in a note. following the announcement.
“Targeted support for home buyers appears to limit one of the most serious risks facing the economy,” Yue added.
Although China was the first major economy to shake off most of its economic shock from the pandemic, concerns have grown over the past year about the sustainability of growth. They are the result of subdued consumer spending, tighter regulations, a struggling real estate sector as well as Beijing’s zero-tolerance policy.
On Monday, the central bank defied market expectations and lowered borrowing costs for medium-term loans for the first time since April 2020.
the The PBOC said it was cutting the interest rate on 700 billion yuan ($110.33 billion) of one-year medium-term loans by 10 basis points, from 2.95% to 2.85%.
China Renaissance’s Bruce Pang noted that the central bank’s cuts of various rates would help both the sagging real estate market and struggling small businesses.
Variable cuts send a pretty strong signal for policy direction, he said. They reflect how the central bank reacts more quickly in its efforts to reduce financing costs, ease pressure on the housing market and stimulate consumption and investment.
China’s economy grew 8.1% in 2021 as steady growth in industrial production offset a drop in retail sales. However, this figure is below economists’ expectations for growth of 8.4%.
— CNBC’s Weizhen Tan and Evelyn Cheng contributed to the report.