China’s Central Bank Cuts Loan Prime Rates

Households will need to wait even longer to benefit. Interest rates on mortgages are almost always adjustable in China. But the adjustment often happens in January, China’s central bank said on Tuesday, in an explanatory statement that accompanied the announcement of the interest rate reduction.

So while people buying homes in the next few months may benefit from the new cuts, many homeowners will need to wait longer.

The move on Tuesday was the first reduction in loan rates by China since August, when the country’s economy was still struggling after a two-month Covid lockdown in Shanghai. The latest cuts send the message that Beijing wants to stabilize output while exports are falling, construction has stagnated and consumer confidence is weak. The government’s abrupt abandonment of Covid controls at the end of last year had spurred hope that China’s economy would snap back.

The modest scale of the interest rate reductions suggests concern among China’s economic policymakers, but not panic. As the global financial crisis gathered speed in late 2008, by contrast, China’s central bank cut its benchmark loan and deposit rates 1.08 percentage points in a single day. And during the Asian financial crisis of the late 1990s, China cut loan rates 1.44 percentage points in one day.

Tuesday’s cut brought the benchmark one-year rate to 3.55 percent from 3.65 percent. Companies typically pay the benchmark rate plus one or more percentage points, with smaller companies and private-sector businesses paying more than big companies and state-owned enterprises.

The five-year rate, used as a benchmark for setting mortgage rates, was cut to 4.2 percent from 4.3 percent. Home buyers and homeowners often pay another percentage point above that level.