China makes biggest-ever cut to mortgage rate to boost housing market
The 25 basis point cut to the five-year LPR is the biggest reduction the central bank has made since it revamped its LPR system in 2019.
China’s central bank said on Wednesday it was cutting the amount of money banks must hold as reserves, unleashing about 800 billion yuan (around $115 billion) in funds into the financial system.
The People’s Bank of China (PBOC) announced that the reserve requirement ratio for financial institutions would be lowered by 50 basis points, effective by January 6. PBOC’s move is to bring the level of giant banks down to 12.5 per cent. At present the required reserve ratio is 13 per cent for big banks and 11 per cent for smaller banks.
The official Xinhua News Agency said that step will release about 800 billion yuan (USD 114.6 billion) into the economy for lending purposes, delivering a shot in the arm to the economy ahead of the Lunar New Year that falls on January 25.
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China’s most important annual holiday is a time when companies and individuals typically need large amounts of cash on hand to pay bonuses, clear debts and cover other expenses.
The PBOC said that it expects total liquidity in the banks to remain stable ahead of the Lunar New Year.
From the total funds released, the small and medium banks may receive around 120 billion yuan, reports quoted the central bank as saying. The bank further said that the funds should be used to provide monetary assistance to the small and local business.
With this central bank’s move, China plans to revive economic growth that slowed to a three-decade low of 6 per cent in the latest quarter.
(With input from agencies)
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