China cuts benchmark loan, mortgage reference rates, signals ‘particular concern’ for housing market
- China’s one-year loan prime rate (LPR) was cut from 3.7 per cent to 3.65 per cent, the People’s Bank of China (PBOC) said on Monday
- The five-year LPR, which is the reference for mortgages, was also cut from 4.45 per cent to 4.3 per cent
China cut its two key benchmark lending rates on Monday amid multiple challenges facing its slowing economy, with the larger cut to the mortgage reference gauge signalling particular concern for the nation’s housing market.
The one-year loan prime rate (LPR) – on which most new and outstanding loans are based – was cut from 3.7 to 3.65 per cent at the August fixing, the People’s Bank of China (PBOC) confirmed.
The five-year LPR – which is a reference rate for mortgages – was also cut from 4.45 to 4.3 per cent.
Most home mortgages are linked to the five-year loan prime rate. So this rate cut is obviously to reduce the burden on borrowers
“Banks in China cut the one-year loan prime rate by five basis points, but cut by 15 basis points the five-year rate. This signals banks are supporting mortgage borrowers,” said Iris Pang, chief economist for Greater China at ING bank.
“It was surprising that banks cut the one-year loan prime rate by only five basis points this month. It could be that banks chose to leave rate-cut room for long-term loans, and instead, cut 15 basis points from the five-year loan prime rate.
“Most home mortgages are linked to the five-year loan prime rate. So, this rate cut is obviously to reduce the burden on borrowers.”
The LPR has been considered China’s de facto benchmark funding cost since 2019. The rate is decided by a group of 18 banks and is reported in the form of a spread over the interest rate of the central bank’s MLF.
