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Investing.com — The People’s Bank of China cut its five-year benchmark loan prime rate by a bigger-than-expected margin on Tuesday, loosening monetary conditions further in a bid to support a slowing economic recovery in the country.
The PBOC cut its , which is used to determine mortgage rates, to 3.95% from 4.20%. Analysts had expected a cut of 10 basis points to 4.10%.
The was left unchanged at 3.45%.
Tuesday’s move was somewhat unexpected, after the central bank kept medium-term lending rates unchanged over the weekend. But steadily worsening economic conditions in China had seen some investors positioning for more monetary easing in the country.
The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.
Tuesday’s move marks the PBOC’s first rate cut since August 2023, and brings the LPR further into record-low territory. While the bank has remained largely hesitant in trimming interest rates, due to concerns over more weakness in the yuan, consistently worsening economic conditions in China appear to have now forced its hand.
The cut in the 5-year LPR also appears to be directed largely towards the struggling property market, which was battered by a slew of high-profile bankruptcies over the past two years as home sales dried up and house prices plummeted.
The Chinese economy barely grew more than targeted in 2023, and was grappling with a pronounced deflationary trend towards the end of the year. Business activity readings for January also showed little signs of improvement.
While Tuesday’s cut is expected to provide more monetary support to the economy, investors have called for more targeted, fiscal stimulus measures from Beijing in recent months, to shore up growth.
“We are cautious in our assessment of the impact of the rate cut. Outstanding mortgage rates are repriced once a year, and whether the large cut today could help restore new-homebuyers’ confidence remains to be seen,” analysts at Citi said in a note to clients.
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