China lowered the reference rate for real estate loans, more than expected, as Chinese authorities intensify efforts to stimulate demand for credit and revive the real estate market.
The increase in net interest earnings for commercial banks after recent cuts in deposit interest rates, and the reduction in banks’ mandatory reserves this month, paved the way for lenders to reduce borrowing costs to support the economy.
The key interest rate on the five-year loan was reduced by 25 basis points to 3.95 percent from 4.20, while the one-year loan rate was unchanged at 3.45 percent.
This is the largest reduction in the interest rate on loans since China updated the loan pricing mechanism in 2019, and the last time China reduced the interest rate on five-year loans in June 2023 by 10 basis points.
The yuan fell to its lowest level since last November 20, while real estate stocks rose.
Most new and outstanding loans in China are based on the one-year loan interest rate, while the five-year rate affects mortgage pricing.
Market observers reported that the interest rate reduction was expected, but the size of the reduction exceeded their expectations.
The Financial News newspaper, which is supported by the Chinese Central Bank, said on its official account on the WeChat application, “Reducing the interest rate on five-year loans will help stabilize confidence and enhance investment and consumption, as well as support the stable and healthy development of the real estate market.”
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2024-05-12 03:53:05