China lowers key rates and strengthens monetary stimulus to revive the economy

A man checks the phone at Lujiazui financial district in Pudong, Shanghai, China March 14, 2019. REUTERS/Aly Song

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SHANGHAI, Jan 20 (Reuters) – China cut benchmark mortgage rates on Thursday as monetary authorities stepped up efforts to support a slowing economy, after data earlier in the week indicated a darkening outlook for the country’s struggling real estate sector.

The reduction in one-year and five-year prime lending (LPR) rates follows surprise cuts by China’s central bank on Monday to its short- and medium-term lending rates, and came days after the vice governor from the central bank signaled further measures to come. .

As the slowdown in the real estate sector persists into 2022 and the fast-spreading Omicron variant dampens consumer activity, many analysts say these easing measures will be necessary, even if other major economies, including the United States, seem ready to tighten their monetary policy this year.

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December economic data showed further weakness in consumption and the real estate sector, two major growth drivers. Read more

At a monthly fix on Thursday, China cut its one-year lending prime rate (LPR) by 10 basis points to 3.70% from 3.80%. The five-year LPR was cut 5 basis points to 4.60% from 4.65%, its first decline since April 2020.

China’s central bank “should hurry up, keep our operations forward-looking, move forward on the market curve, and respond to general market concerns in a timely manner,” the vice-president said on Tuesday. – Governor of the People’s Bank of China, Liu Guoqiang, reinforcing market expectations for more stimulus. Read more

All 43 participants in a Reuters snap poll had predicted a one-year LPR cut for a second consecutive month. Among them, 40 respondents also expect a drop in the five-year rate. Read more

The drop in the 5-year rate suggests that “Chinese authorities are keen to reduce the cost of lending, so total credit growth should rebound after the Spring Festival to ease pressure on the macroeconomy,” Marco Sun said. , General manager. financial analyst at MUFG.

“China’s monetary policy still has some room to ease in the first half of this year, depending on the policy pass-through effect and the growth target set by the annual parliamentary meeting in March.”

Stocks and bonds of property companies surged on Thursday after the LPR cut, as investors hoped that and other recent government measures would help ease the funding crunch in the sector which has seen a growing number of developers do default on their debts. Read more

Sheana Yue, China economist at Capital Economics, expects another 20 basis point cut in the one-year LPR in the first half of this year.

The interest rates on medium-term loan facilities (MLF) serve as a guide to the LPR. Market participants believe that the switch to LPR should mimic the adjustments in MLF rates.

Most new and existing loans in China are based on the one-year LPR. The five-year rate influences mortgage pricing.

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Reporting by Winni Zhou and Andrew Galbraith; Editing by Muralikumar Anantharaman, Christopher Cushing, Gerry Doyle and Kim Coghill

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