China cuts mortgage reference rate again, seeking to revive credit By Reuters

© Reuters. FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration

SHANGHAI (Reuters) – China cut its benchmark reference rate for mortgages by an unexpectedly wide margin on Friday, its second cut this year as Beijing seeks to revive credit demand to prop up the economy.

Senior officials have pledged further measures to fight a slowdown in the world’s second-biggest economy, hit by COVID-19 outbreaks that prompted stringent measures and mobility restrictions, causing huge disruptions to economic activity.

Many market participants believe Friday’s move was also a response to Premier Li Keqiang’s call to decisively step up policy adjustments and strive to let the economy return to the normal track quickly.

China, in a monthly fixing, lowered the five-year loan prime rate (LPR) by 15 basis points to 4.45%, the biggest reduction since China revamped the mechanism in 2019. The one-year LPR was unchanged at 3.70%.

The LPR is a lending reference rate set monthly by 18 banks and announced by the People’s Bank of China. Banks use the five-year LPR to price mortgages, while most other loans are based on the one-year rate. Both rates were lowered in January to boost the economy.

Friday’s cut suggests that “China’s economic growth was facing increasing resistance this year,” said Marco Sun, chief financial market analyst at MUFG Bank.

“Cutting the five-year LPR was an attempt to accelerate recovery of the real estate sector,” Sun said, adding that the authorities refrained from cutting the one-year rate because of recent ample liquidity conditions in the banking system refrained authorities from lowering the one-year LPR.

Eighteen traders and analysts, or 64% of 28 participants, in a Reuters snap poll predicted a reduction in either rate, including 12 respondents forecasting 5-basis-point cuts for each tenor.

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