China makes biggest-ever cut to mortgage rate to boost housing market

Hong Kong, Feb 20: China’s central bank has cut its key mortgage reference rate by a record amount, as it ramps up efforts to stem a prolonged property crisis, a media report said.

The People’s Bank of China (PBoC) announced on Tuesday that it would cut its five-year loan prime rate (LPR) from 4.2 per cent to 3.95 per cent, while keeping the one-year LPR unchanged at 3.45 per cent, CNN reported.

The 25 basis point cut to the five-year LPR is the biggest reduction the central bank has made since it revamped its LPR system in 2019.

LPR is the rate at which commercial banks lend to their best customers. The five-year rate usually serves as a reference for mortgages.

“Today’s 25 (basis point) cut to the five-year LPR is clearly aimed at supporting the housing market,” analysts from Capital Economics said in a note on Tuesday, CNN reported.

“On its own, it will not revive new home sales. But coupled with efforts to provide increased credit support to the developers, today’s cut should help to reduce pressure on the property sector somewhat,” they said, as per the report.

China’s economy has been hobbled by a real-estate downturn since 2021, when a government crackdown on developers’ borrowing triggered a liquidity crisis in the sector.

The property market has since entered a prolonged slump, marked by an ongoing decline in both investment and sales of property. Dozens of major developers have defaulted on their debt, with Evergrande, once the country’s second largest homebuilder, ordered to liquidate last month, CNN reported.