China’s anticipated cut to rates on existing mortgages marks one of the most concrete actions yet to boost the beleaguered economy, though it likely won’t be enough on its own to shore up growth.
That’s according to several economists after Bloomberg News reported Tuesday that the nation’s largest lenders are preparing to cut interest rates on existing mortgages and deposits. The state-directed measures mark the latest push by Beijing to spur consumer spending, juice the stock market and ease pressure on bank profit margins as the world’s second-largest economy loses steam.
China’s economic recovery is struggling under the weight of deflationary pressures, waning exports and a persistent property crisis. Real estate giant Country Garden Holdings Co. is teetering on the brink of default and risks from the property turmoil are now spreading to the country’s $60 trillion financial system.
“A big cut may prompt some to repay early loans on some properties they hold to make mortgages on the rest of homes they own eligible for the rate reduction,” Xing said. He doesn’t expect the magnitude of the cuts to be huge, given the need to reconcile the interests of developers, homebuyers and financial institutions.
Major lenders are also poised to cut deposit rates later this week for the third time in a year, Bloomberg News reported. That measure should help reduce costs for the state-owned banks and protect their profit margins, allowing them to lower their lending rates over time. Analysts recently polled by Bloomberg see the People’s Bank of China trimming the rate on its one-year policy loans by another 10 basis points before the end of the fourth quarter, after cutting it twice in 2023 already.
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