China reduces lending standards to stimulate the economy. China has slashed its benchmark lending rate and mortgage reference rate by a larger margin, adding to last week’s softening measures, as Beijing intensifies attempts to revitalize an economy hampered by a property crisis and a recurrence of COVID-19 cases.
At the central bank’s monthly fixing on Monday, the one-year loan prime rate (LPR) was reduced by five basis points to 3.65 percent, while 15 basis points reduced the five-year LPR to 4.30 percent.
The annual LPR was most recently decreased in January. The five-year tenor, which was last reduced in May, affects the cost of mortgages.
In a survey conducted by the Reuters news agency last week, 25 of 30 respondents expected a 10-basis-point decline in the one-year LPR. All respondents predicted a drop in the five-year tenor, with 90 percent predicting a reduction more significant than ten basis points.
MUFG Bank’s chief financial market analyst, Marco Sun, stated that the asymmetrical LPR cutbacks followed forecasts.
“The policy aim was pretty clear, as the 15 bps [basis points] drop to the 5-year LPR was intended to stimulate demand for long-term financing.”
Decrease in the Mortgage Reference Rate
The more significant decrease in the mortgage reference rate on Monday underscores officials’ efforts to calm the housing market following developer defaults and a decline in home sales.
China would guarantee future onshore bond issuance by a select few private developers to assist the industry, which accounts for a quarter of the national gross domestic product, according to sources who spoke to Reuters last week (GDP).
Read: Political turmoil and the economy of Pakistan
Last week, the LPR cut came after the People’s Bank of China stunned the market by decreasing the medium-term lending facility rate and another short-term liquidity instrument to stimulate credit demand in the sluggish economy.
According to a slew of statistics that was also revealed last week, the economy unexpectedly slowed in July, prompting some global investment firms like Goldman Sachs and Nomura to adjust their full-year GDP growth predictions for China.
