FRIDAY’S CUT IN mortgage rates, the second this year, had been signalled, but its size was a surprise.
The People’s Bank of China lowered the five-year loan prime rate by 15 basis points to 4.45%, the deepest cut since the 2019 revision of its interest rate mechanism, and at least half as much again as private economists expected.
However, the central bank left its one-year reference rate unchanged at 3.70%. This hints that caution over policy easing persists even as authorities seek to boost the beleaguered housing sector to prop up an economy sagging under the weight of the zero-Covid strategy to contain outbreaks of infection.
Housing starts, sales and prices all fell in April. Construction activity fell by 44% year-on-year, following a 20% year-on-year drop in January-March. For the first four months of the year, residential property sales were down by 32.2% year-on-year and commercial property sales by 29.5%.
More than 100 cities have introduced measures in recent months to support first-time buyers while keeping speculative investors at bay. In the short term, the latter group’s return would most rapidly ginger up housing market activity, even if the long-term costs are undesirable.
For now, authorities can hope to do little more than stabilise the property downturn, especially while cities remain in lockdown. Reinflating prices would require broader stimulative measures, undoing several years of stop-go deleveraging of the debt risks in the economy.
Meanwhile, the scope for broader interest cuts is also limited by fears of accelerating the pace of capital outflows as the US Federal Reserve raises its rates.
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