Housing sector

China Cuts Borrowing Rate Again, Seeking to Revive Housing Sector | The mighty 790 KFGO

SHANGHAI (Reuters) – China on Friday cut its benchmark mortgage rate by a surprisingly wide margin, its second cut this year as Beijing seeks to revive the struggling housing sector to support the economy.

Senior officials have promised new measures to tackle the slowdown in the world’s second-largest economy, hit by COVID-19 outbreaks that have led to 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 quickly return to normal.

The country’s benchmark stock index, the Shanghai Composite Index, rose about 1% in early trading after Friday’s rate cut, but real estate stocks held steady.

China, in a monthly fix, cut the five-year prime lending rate (LPR) by 15 basis points to 4.45%, the biggest cut since China revamped the mechanism in 2019. The LPR on one year remained unchanged at 3.70%.

Many private sector economists expect China’s economy to contract this quarter from a year earlier, down from 4.8% growth in the first quarter. Indicators for credit loans, industrial production and retail sales showed that strict COVID-related measures and mobility restrictions have taken their toll.

One of the biggest drags on growth has been the real estate sector, which policymakers are looking to turn around. Real estate and related sectors such as construction make up more than a quarter of the economy.

The LPR is a benchmark lending 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 stimulate the economy.

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

“The reduction of the LPR to five years was an attempt to accelerate the recovery of the real estate sector,” Sun said, adding that the authorities refrained from reducing the rate to one year due to recent abundant liquidity conditions in the system. banking. One year RLP.

Eighteen of 28 traders and analysts in a Reuters poll had forecast a cut in either rate, including 12 who expected a 5 basis point cut for each tenor.

A campaign by the authorities to reduce high debt levels turned into a liquidity crunch last year among some big developers, leading to bond defaults and abandoned projects, rattling global financial markets.

Since late last year, Beijing has taken steps to help revive the real estate sector. These included making fundraising easier for large developers and public developers, relaxing rules on escrow accounts for presale funds, and allowing some local governments to reduce mortgage rates and debt ratios. ‘deposit.

This week, financial authorities allowed banks to cut interest rates on mortgages for some homebuyers. But this measure and Friday’s cut alone will not ease funding constraints for developers, many of whom are struggling to refinance debt.

Property stocks have rebounded recently, but Friday’s muted reaction to the drop suggests some investors believe that may not be enough to revive the struggling sector.

“Policymakers may have reached a consensus on whether to revive the real estate sector,” said Xing Zhaopeng, senior China strategist at ANZ, predicting further easing measures.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Christopher Cushing and William Mallard)