context: Critical to this move was the fall of the five-year rate. The five-year rate is the benchmark for mortgage rates, meaning a decline should stoke the housing market. This is a stark departure from the policy goals in the first half of 2021, which saw local governments roll out purchase restrictions and other policies to dampen demand.
The People's Bank of China cut the LPR (loan-prime rate) on 20 Jan 2022, specifically
- one-year LPR was cut 10 basis points to 3.7 per cent
- five-year LPR was lowered by 5 basis points to 4.6 percent
The cuts were expected after the MLF rate was cut on 17 January. The core purpose of interest rate cuts, according to Li Chao 李超 Zheshang Securities chief macro analyst, is to reduce costs for the real sector. It will also help reduce corporate financing costs and reduce residents' debt costs, conducive to increasing consumer spending. Recently, mortgage rates in hot cities such as Shenzhen and Guangzhou have fallen, notes Zhong Zhengsheng 钟正生 Ping'an Securities chief economist, and this indicates that the supply and demand for housing loans have improved. Historically, when downward pressure on housing prices is great and the demand for stable real estate investment is strong, monetary policy is eased, he adds. The cut will help boost the real estate market, reiterates Yan Yuejin 严跃进 E-House Research Institute research director. For real estate enterprises, the cost of medium and long-term loan capital will be further reduced, encouraging real estate developers to start new construction in 2022. Homebuyers will gain confidence and increase purchases, he adds.