LPR: China cuts key mortgage rate to record low to support housing market

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China's central bank has cut its key mortgage benchmark rate to a record low as it ramps up efforts to stem a lingering asset crisis.

The People's Bank of China (PBOC) announced on Tuesday that it will cut its five-year lending prime rate (LPR) to 3.95% from 4.2%, while keeping the one-year LPR at 3.45%.

The five-year LPR was cut by 25 basis points, the biggest cut by the central bank since then. Updated Its LPR system 2019. In August, the central bank announced that the LPR would become the new reference rates for lending by Chinese banks.

The latest cut is the first reduction in the five-year LPR From June 2023.

LPR is the rate at which commercial banks lend to their best customers. The five-year rate generally serves as a benchmark for mortgages.

“Today's 25 (basis point) cut in the five-year LPR is clearly aimed at supporting the housing market,” analysts at Capital Economics said in a note on Tuesday.

“That, on its own, will not revive new home sales. But today's cut, along with efforts to provide increased credit support to developers, will help ease some of the pressure on the property sector. They said.

China's economy was Rocked by the real estate slump From 2021, the government's crackdown on developers' borrowing triggered a liquidity crunch in the sector.

The property market has entered a long-term slump, indicating a continued decline in both property investment and sales. Dozens of major developers have defaulted on their loans, including Evergrande, once the nation's second-largest homebuilder. Ordered to dissolve Last month.

It has caused a crisis Widespread protests Unpaid construction workers, buyers of unfinished houses and frustrated investors face financial loss. It has also spread to the country A massive shadow banking industryZhongrong Foundation declared itself bankrupt last year after defaulting on its loans.

Beijing is scrambling to revive the property sector, which accounts for 30% of China's GDP.

Includes published activities Lowering interest rates, Reducing the amount of advanceEncouraging banks to extend maturity loans to developers and easing restrictions on home purchases in Chinese cities.

China's economy is facing various problems including deflation, Low confidence and accelerated capital flight.

of the country Direct investment liabilitiesThe volume of foreign direct investment will reach $33 billion by 2023, according to data released by the State Administration of Foreign Exchange on Sunday.

The measure, which measures direct investment by foreign-owned companies in China, fell 82% from 2022 and is at its lowest level since 1993.

While an uncertain economic outlook and rising geopolitical tensions are partly to blame for the exodus, foreign companies and investors have grown cautious. Increasing political risks In China, including the possibility of inspections and detentions.

The stock markets of the country have experienced a sharp decline A long recession Since reaching their most recent peak in 2021, more than $6 trillion in market value has been wiped from the Shanghai, Shenzhen and Hong Kong markets.