China cuts mortgage rate to prop up economy. Is bigger policy loosening close?

China’s one-year loan prime rate (LPR) was cut from 3.65 per cent to 3.55 per cent, while the five-year LPR was also cut from 4.3 per cent to 4.2 per cent

China’s central bank also cut three policy interest rates last week amid efforts to support the slowing economy following a string of disappointing data

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China cut its two key benchmark lending rates on Tuesday amid efforts to support the slowing economy following a string of poor data, including record high youth unemployment. Photo: Getty Images

Published: 9:19am, 20 Jun 2023Updated: 12:30pm, 20 Jun 2023

China cut two benchmark lending rates on Tuesday, in the latest sign that Beijing’s policymakers are aiming to lower the financial burden on households and also help stabilise the cooling property sector.

The latest moves by the central bank have fuelled further hope of broader economic stimulus to shore up China’s headline growth, and stabilise market confidence, after major international investment banks slashed their 2023 gross domestic product forecasts from last week.

The five-year loan prime rate (LPR) – which is a reference rate for mortgages – was cut from 4.3 to 4.2 per cent at the June fixing, the People’s Bank of China said.

The one-year loan prime rate – the medium-term lending benchmark for corporate loans – was also cut from 3.65 to 3.55 per cent.

While the cuts won’t make much difference on their own, they are set to be followed by wider policy easing

Capital Economics

The cuts come after a broad cooling of economic activity last month raised market worries over China’s faltering post-coronavirus recovery.

Both key lending rates were last cut in August.

The size of the LPR rate cut was the same as the 10 basis point reduction of the medium-term lending facility announced by the central bank last week.