Beijing, Monday, February 26, 2024 – On Thursday, February 22, the People’s Bank of China announced a significant cut to the five-year loan prime rate (LPR), the largest since the reference rate’s introduction in 2019. 1
This move comes amidst China facing a deepening economic crisis and growing deflationary pressures, and it aims to stimulate borrowing and bolster the struggling property market, which has been a major drag on the broader economy. 2
The 25-basis point reduction, exceeding analysts’ expectations, brings the five-year LPR to 3.95%.
However, experts remain cautious, highlighting that affordability concerns are deeper than just interest rates.
The decision follows alarming consumer price data released earlier in the week, showing a 0.8% year-on-year decline in January’s CPI—the fastest drop since the global financial crisis.
This raises concerns about potential deflation, prompting calls for swift and decisive action from the government.
President Xi Jinping is under mounting pressure to stabilize the economy, which is currently experiencing its weakest performance since 2009.
While measures like releasing funds for banks and issuing government bonds have been implemented, confidence remains shaky.
The drastic rate cut signals a strong commitment to supporting the housing market, but doubts linger about its effectiveness.
Analysts urge further measures, like direct cash injections into lenders and developers, to truly address the sector’s underlying issues. 3
- WSJ.com: https://www.wsj.com/economy/housing/chinas-new-home-prices-fell-at-faster-pace-in-january-a99dafb4[↩]
- gebnews.com: https://www.gbnews.com/news/world/china-economy-latest-mortgage-linked-lending-rate[↩]
- gbnews.com: https://www.gbnews.com/news/world/china-economy-latest-mortgage-linked-lending-rate[↩]
