China cuts mortgage reference rate for first time in nearly two years

People pass by Beijing Railway Station, Jan. 19. EPA-Yonhap

China cut its benchmark lending rates for corporate and household loans for a second straight month at its January rate fixing meeting Thursday, while lowering a mortgage reference rate for the first time in nearly two years.

The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.7 percent from 3.8 percent and the five-year LPR was reduced by 5 basis points to 4.60 percent from 4.65 percent.

The cut to the five-year LPR was the first reduction since April 2020.

The LPR cuts were well expected after official comments called for more monetary easing to prop up the broad economy.

All 43 participants in a snap Reuters poll predicted a cut to the one-year LPR for a second straight month. Among them, 40 respondents also forecast a reduction to the five-year LPR rate.

China's central bank "should hurry up, make our operations forward-looking, move ahead of the market curve, and respond to the general concerns of the market in a timely manner," People's Bank of China Vice Governor Liu Guoqiang said on Tuesday, heightening market expectations for more stimulus to help economic stability.

Liu's comments followed an unexpected cut to borrowing costs for medium-term loans earlier this week, after December economic data showed further weakening in consumption and the troubled property sector, both major growth drivers.

Interest rates on medium-term lending facilities (MLF) now serve as a guide to the LPR. Market participants believe moves to the LPR should mimic adjustments to MLF rates.

Most new and outstanding loans in China are based on the one-year LPR. The five-year rate influences the pricing of mortgages. (Reuters)

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