The People’s Bank of China cut its five-year loan prime rate (LPR) by 15 basis points to 4.45%, the second reduction this year and the largest on record. Most analysts had expected a cut of five basis points.
China’s LPR is the rate at which commercial banks lend to their best customers. It serves as the benchmark for other loans and the five-year maturity is typically used as a reference for mortgages.
Sales of new homes plunged 47% in April from a year earlier, according to the National Bureau of Statistics earlier this week, while prices in 70 cities dropped for an eighth consecutive month.
Property sales have slowed since last year, as tight credit policies and a weakening economy damped demand. This year’s Covid lockdowns hit the industry further.
“The Omicron wave and draconian lockdowns in around 40 cities have significantly limited mobility, employment, income and the confidence of Chinese households,” Nomura analysts said.
“Beijing wants to rescue the property markets, which have experienced the worst contraction in many years,” they added.
China’s central bank announced some other measures this week to lift the market. The PBOC said last Sunday that it would cut the mortgage rate for first-time homebuyers.