(PBOC) China’s central bank set its five-year loan prime rate at 4.45%, a significant reduction from the previous 4.6%. The reduction was the largest cut since it was revamped in 2019.
The rate reduction follows concerns of a slowing economy amid weak demand for loans due to the impacts of the Covid-19 lockdowns and the ailing property sector.
The new loan rate will be applicable to new mortgages immediately, but the existing loans won’t be repriced until next year.
The central bank maintained the one-year loan prime rate at 3.7%, defying expectations of a five or ten basis points reduction.
The rate cut happens after the People’s Bank of China cut the floor on new mortgage rates to 20 basis points. The latest reduction implies that the minimal rate that banks can charge homebuyers will be 4.25%.
Analysts are still less optimistic the rate cut will boost the property sector. NatWest Group China economist Liu Peiqian says stringent regulations, dampened consumer demand, and relatively tight liquidity conditions are headwinds.
China’s LPRs reflect the rates that 18 banks offer to their clients. The rates were cut last in January and remained unchanged on May 16.
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