MNI STATE OF PLAY:PBOC 5-Year LPR Cut To Boost Property Demand

The People’s Bank of China cut its long-term lending reference rate at an unexpected-pace, sending a clear signal to boost a soft property market, which is a key driving force to reach the growth target this year.

The Loan Prime Rate, guiding lenders’ actual loan interest rates, was lowered by 15bps to 4.45% for the five-year maturity, the second cut this year after a 5bps reduction in January, but the central bank kept the one-year LPR unchanged at 3.7% this month. See: MNI STATE OF PLAY: Still A Chance For PBOC To Cut The LPR.

This is the third cut that for the five-year and above tenors of LPR after it was introduced in 2019, and the 15bps cut is the largest pace on record.

The PBOC has already lowered the floor of mortgage interest rates for first-time house buyers to 20 basis points below the LPR, and the minimum mortgage rate could drop to as low as 4.25%, the lowest in a decade and compared to the national wide average one at 5.49% as of the end of March, according to Wind.

The five-year cut will significantly reduce mortgage loan interest rates in some cities, commented Wen Bin, chief researcher of Minsheng Bank, noting it could help reduce mortgage burdens and boost consumption. China has an around 5.5% growth target this year, but recent data points to a sharp slowdown linked to lockdowns in big cities, including the commercial hub of Shanghai.

CREDIT DATA

The move was after credit data released this month showed that new mortgage loans declined by CNY60.5 billion in April from an increase of CNY341 billion in the same last period last year, indicating sluggish house buying.

Ming Ming, chief economist at CITIC Securities and a former PBOC official, said the cut could stimulate long-term credit demand of companies and boost investment. He predicted long-term loans would jump after the cut, which would support economic performance.

Chinese policymakers have started to relax restrictions on the property market this year as about 130 cities have lifted regulations, including reducing their mortgage rates and adjusting down payment ratios lower.

As a result, the property market will bottom out in the second half of the year if the pandemic can be effectively controlled, said Zhang Dawei, an analyst at Zhongyuan Real Estate.