The People’s Bank of China announced Monday that it would cut its five-year loan prime rate from 4.45% to 4.3%. It also slashed its one-year loan prime rate from 3.7% to 3.65%.
Some experts said the main takeaway on Monday was the bigger-than-expected drop in the five-year loan prime rate, which pointed to heightened concerns over housing.
“It’s all about property,” Larry Hu, chief China economist for Macquarie, wrote in a report. “Today’s cut is much needed, as the property sector is currently the biggest drag to the economy.”
Trouble in the property sector — which accounts for as much as 30% of China’s GDP and was already suffering from a prolonged cash crunch — is exerting significant pressure on the world’s second biggest economy.
Mo Bin, Country Garden’s president, attributed the dismal earnings forecast to a drop in property sales, “the tough business environment in the real estate industry,” continued fallout from the Covid-19 pandemic, narrowing profit margins on some projects, and foreign exchange losses.
More help from the state is expected. Several analysts said Monday that they anticipated further cuts to the five-year loan prime rate later this year.
Officials have also announced other measures aimed at shoring up the sector. They include arrangements for certain loans to be extended on projects that have faced delays in deliveries, and for authorities to “help provide guarantees to onshore bond financing of selected private property developers,” Goldman Sachs analysts noted in a report Monday.
By doing so, policymakers hope to help ease developers’ cash flow problems and restore confidence in the industry more broadly, they wrote.
“However, homebuyers with existing mortgages will have to wait until the start of next year for the [latest] change to affect them,” Sheana Yue, China economist at Capital Economics, noted in a report.
“What’s more, the current weakness in loan demand is partly structural, reflecting a loss of confidence in the housing market and the uncertainty caused by recurrent disruptions from China’s zero Covid strategy,” she added. “These are drags that can’t be easily solved by monetary policy.”
— Laura He contributed to this report.