China's central bank cuts Loan Prime Rates to 3.6% for 1 year

China's central bank, the People’s Bank of China (PBOC) today cut two-key benchmark lending rates with a big cut in a key mortgage-linked benchmark to manage the ongoing crisis in its real estate sector as a faltering economy battered by Zero-COVID Policy tests China’s leadership. 

This comes amid multiple challenges of real-estate crisis, high unemployment among youth, power shortages due to extreme heat waves and frequent disruptions in industrial production and supply chain due to repeated and uncertain COVID-19 lockdowns, facing its slowing economy against the backdrop of ongoing geopolitical tensions.

 

The one-year Loan Prime Rate came in at 3.65 per cent today, down from 3.7 per cent. The over-five-year LPR, which is the reference for home loan mortgages, was also cut from 4.45 per cent to 4.3 per cent. Experts said, the much larger cut to the



five-year rate suggests the PBOC is particularly concerned about problems in the housing market.

China's loan demand has weakened due to loss of confidence in the housing market and the uncertainty caused by recurrent disruptions from China's Zero COVID strategy, causing a drag on the economy. Many Chinese real estate giants have defaulted on the bonds and the crisis is deepening with the mortgage defaults. China’s demand has already weakened due to Zero-COVID- Policy-induced uncertainties and lockdowns.

 

Last week, China’s Premier Li Keqiang called on six key provinces that account for about 40 per cent of the country’s economy to play a leading role in stabilizing the economy after data for July showed a slowdown across the board viz. retail sales, industrial production and fixed asset investment.