Chinese banks cut a key interest rate for long-term loans by a record amount that would reduce mortgage costs and may boost weak loan demand amid a property slump and Covid-19 lockdowns taking a toll on the economy.
The five-year loan prime rate (LPR), a reference for home mortgages, was lowered to 4.45 per cent from 4.6 per cent, down by the most since a revamp of the rate in 2019, according to a statement by the People’s Bank of China (PBOC) on Friday.
The development comes after the PBOC earlier reduced the floor on the rate for new mortgages on Sunday in an attempt to spur demand for new loans, which dropped in April.
While the central bank kept rates unchanged on May 16, banks’ funding costs have come down in recent weeks, giving them scope to lower rates.
The reduction in loan rates would help reduce businesses’ and consumers’ borrowing costs and may boost demand for loans and support economic activity.
The one-year LPR – the de facto benchmark lending rate – was kept unchanged at 3.7 per cent. The majority of economists surveyed by Bloomberg had predicted a cut of either five or 10 basis points.
“The cut in the five-year LPR rate reflects the focus on supporting the property sector, in line with the recent relaxation measures,” said Ms Frances Cheung, rates strategist at OCBC Bank in Singapore, as reported by Bloomberg.
