Business

PBOC cuts lending prime rate (LPR) for 1-year, 5-year terms


Pedestrians walk past the People’s Bank of China headquarters in Beijing, China.

Giulia Marchi | Bloomberg | beautiful pictures

China’s central bank cut its benchmark lending rate again on Thursday amid concerns about an economic slowdown in the world’s second-largest economy.

People’s Bank of China reduce the basic interest rate on a one-year loan increased by 10 basis points from 3.8% to 3.7%. In December, PBOC cuts one-year loan prime rate for the first time since April 2020.

The base rate on the 5-year loan has been lowered by 5 basis points from 4.65% to 4.6% – this is the first cut since April 2020, at the height of the coronavirus pandemic domestic.

The prime lending rate affects lending rates for domestic corporate and household loans.

Most new and outstanding loans in China are based on the one-year LPR, but the five-year interest rate affects the valuation of home mortgages, according to Reuters. A quick Reuters poll showed most participants expected China to cut both lending rates on Thursday.

According to Capital Economics, the rate cuts continue the PBOC’s efforts to lower borrowing costs.

“Mortgages will now be a bit cheaper, which should help boost housing demand. The PBOC has pushed banks to increase mortgage lending volume,” said Sheana Yue, China economist at the firm. , said in a note following the announcement.

“Targeted support for property buyers seems to be limiting one of the more severe downside risks facing the economy,” Yue added.

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Although China was the first major economy to shake off most of the economic shock caused by the pandemic, concerns grew last year about the sustainability of growth. They come due to constrained consumer spending, tighter regulations, a struggling real estate sector and Beijing’s zero-tolerance Covid policy.

On Monday, the central bank despite market expectations and reduced the borrowing costs of medium-term loans for the first time since April 2020.

The PBOC says it is cutting interest rates for a one-year medium-term loan facility worth 700 billion yuan ($110.33 billion), up 10 basis points from 2.95% to 2.85%.

Bruce Pang from China Renaissance noted that the central bank’s various rate cuts would help both the slumping property market and struggling small businesses.

The various cuts send a pretty strong signal for policy direction, he said. They reflect how central banks are reacting more quickly to efforts to reduce financing costs, ease pressure on the property market and boost consumption and investment.

The China’s economy grew by 8.1% in 2021 when steady growth in industrial production offsets the drop in retail sales. However, that number did not fall short of economists’ expectations for growth of 8.4%.

Weizhen Tan and Evelyn Cheng of CNBC contributed to the report.

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