China cuts interest rates for the first time in 20 months | Daily Express Online

China cuts interest rates for the first time in 20 months

Posted on: Tuesday, December 21, 2021

By: AFP

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Chinese buyers examine housing models for a residential real estate project in real estate in China in 2018. (AP)

BEIJING: China’s central bank on Monday cut its key rate for the first time in nearly two years in a bid to boost growth in the world’s second-largest economy as it cracks under the impact of a housing crisis and surges in coronavirus. China said in a statement it had lowered the prime lending rate (LPR) to 3.8% from 3.85% in November. The move marks the first rate cut – which determines the amount of interest charged by commercial banks to corporate borrowers – since April 2020.

It also follows the bank’s decision earlier this month to reduce the amount of cash lenders must hold in reserve, which it says would free 1.2 trillion yuan ($ 188 billion) into the economy. . “Today’s reduction will have an immediate impact on outstanding variable rate commercial loans and should also lead to cheaper loans for new fixed rate borrowers,” said Mark Williams, chief economist for Asia at Capital Economics. “We expect the LPR to drop over five years soon, which will make mortgages slightly cheaper and help official efforts to support housing demand,” he added. The cut comes amid concerns about inflation, with ex-factory prices rising to levels not seen in the mid-1990s. Jeffrey Halley, OANDA, said China “appears to blink in the face of slower growth. next year”.

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“Many more loans are based on the one-year LPR than on the five-year basis, so this decision is a concrete signal that China is embarking on a supportive monetary policy,” he added. China was the only major economy to grow in 2020 despite the pandemic, but growth has slowed this year due to headwinds from a deepening debt crisis in its real estate sector and localized outbreaks of Covid . The real estate sector, a major engine of growth, remains a source of concern, with several large companies, including Evergrande, having defaulted on their obligations in recent weeks. Outbreaks of the virus in industrial centers in the east and south of the country have also caused the closure of some districts and forced hundreds of thousands of people into quarantine and other restrictions. Nomura’s Lu Ting warned that the LPR cup is “too small to have an impact.” “The real brakes on the Chinese economy are the supply shock due to the

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the rising costs of China’s zero Covid strategy to contain coronavirus waves, slow export growth and the deterioration of the real estate sector, ”he said. Addressing these bottlenecks, he added, requires “much more aggressive easing and stimulus measures.”
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Stephen V. Lee