China cuts mortgage reference rate by 25bps to 3.95%

February 20, 2024 (MLN): The People’s Bank of China (PBoC) announced its biggest-ever reduction of 25 basis points (BPS) in the benchmark mortgage rate on Tuesday, lowering it to 3.95%.

It was the first rate cut since June 2023, and the largest since that rate was introduced in 2019. The rate cut was also far more than what the analysts had expected.

The reduction in the nation’s mortgage reference rate failed to dispel the gloom surrounding the world’s number two economy, said Bloomberg.

The cut to the five-year loan prime rate was a “good gesture from the commercial banks but still now the property problem is not about the mortgage rate,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd.

The move may “slightly boost the property demand but I would not expect much,” he added.

Yan Yuejin, analyst at E-House China Research and Development Institution said, "This is the biggest signal. In other words, the largest interest rate cut cycle in history has begun," as Reuters reported.

The cut will directly impact the real estate sector by lowering mortgage costs, he said.

Gains in Chinese equities on Monday fell short of expectations in the first session back following the Lunar New Year holiday.

A rise in trading volume for several exchange-traded funds in the country offered a clue that state-backed funds were continuing to support the market.

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