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China has cut its key lending rates again a week after being surprised by slashing rates. China’s central bank trimmed its five-year loan prime rate to 4.30% from 4.45% and it's one-year- loan prime rate to 3.65% from 3.70% on Monday.
Last week, the People’s Bank of China lowered the rate of the one-year medium-term lending facility (MLF) loans to some financial institutions by ten basis points.
China trimmed its crucial lending rates again on Monday, one week after it cut two interest rates in a surprise move. The moves are seen as an attempt to revive credit demand and fire up the economy hurt by extended Covid lockdowns and property debt problems.
The People’s Bank of China cut its five-year loan prime rate by 15 basis points to 4.30% from 4.45% and lowered its one-year loan prime rate by five basis points to 3.65%.
Most new loans in China are based on the one-year LPR. Last week, the Chinese central bank lowered the rate of the one-year medium-term lending facility (MLF) loans to some financial institutions by ten basis points.
It also cut the seven-day reverse repo rate by ten basis points to 2%. Though the LPR cut may provide near-term relief, easing liquidity alone is unlikely to lead to a turnaround to the property market.
Analysts such as Navigate Commodities managing director Atilla Windell said positive reactions to last week’s rate changes were short-lived.
“Fresh monetary easing/stimulus was seen as futile as ‘flogging a dead horse,’ given that China’s economy desperately needs consumers back on the streets spending money,” he said in a note.
About the latest round of cuts, David Chao, global market strategist for the Asia Pacific (ex-Japan) at Invesco, said it hinted at the seriousness of the property market downturn.
However, he conceded that these cuts wouldn’t be enough to increase liquidity. “It sends a strong message that policymakers are willing to take more forceful actions to stabilize the ailing market,” he said in a note.
“Though the LPR cut may provide near-term relief, easing liquidity alone is unlikely to lead to a turnaround to the property market.” He added that lower mortgage rates haven’t translated into higher property sales “due to the lack of confidence in large developers and the presales model.”
Chao said he doesn’t expect these to be the last monetary policy fixes from the Chinese authorities, especially when “central and local governments have the financial tools to provide an excess of 3 trillion yuan to boost the property sector.” - CNBC.
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