BEIJING — China’s central bank cut interest rates on Monday to boost an economy battered by the government’s strict zero-COVID policy and a slump in the housing market.
The world’s second-largest economy has seen an improvement after some coronavirus restrictions were eased in June, but consumer and business sentiment remain weaker than usual.
The one-year prime lending rate, which serves as a benchmark for business loans, was cut from 3.7% to 3.65%, the People’s Bank of China (PBOC) said in a statement.
The five-year LPR, used to price mortgages, was cut to 4.3% from 4.45%, he added.
The PBOC cut interest rates last week, taking its seven-day repo rate — a key rate at which it provides short-term liquidity to banks — to a new low.
Analysts had expected LPR rate cuts, but said they may not be enough to bail out the real estate sector – which would account for up to a quarter of China’s GDP.
“The much larger reduction in the five-year interest rate suggests that the PBOC is particularly concerned about problems in the housing market,” Capital Economics said in a statement Monday.
“However, homebuyers with existing mortgages will have to wait until early next year for the change to affect them.”
China’s housing market was rocked by frustrated buyers in dozens of cities boycotting mortgage payments as cash-strapped developers struggled to complete pre-sold units.
As property companies struggle to cope with piles of debt, fears have surfaced since last year that the sector’s problems could spread to the rest of the economy.
“Most home loans are tied to the prime rate (over five years). This rate cut is therefore obviously aimed at easing the burden on borrowers,” said Iris Pang, chief economist for Greater China at ING, in a statement.
“If the market sees progress in the construction of unfinished projects, we could see an improvement in home buying sentiment and home prices should stabilize.”
China’s economic growth in the second quarter was just 0.4% year on year – the lowest rate since the start of the COVID crisis in 2020.
- Editor / additional report by AFP
