China cuts interest on loans, a stimulus for the real estate sector

China further cut the cost of bank loans on Thursday in a new move to stimulate its economy and support a troubled real estate sector.

This is the second interest rate cut by the People’s Bank of China (PBC, central) in two months, and led to increases in shares and bonds of real estate firms, days after Beijing reported a slowdown in economic growth in the final months of 2021.

The cooling of the real estate sector influenced the economic slowdown in the second half, with several companies falling into default, such as the giant Evergrande.

The central bank announced that it has lowered the prime lending rate (TPP) to 3.7%, from 3.8% in December.

The institution had reduced that rate in December for the first time in 20 months, when the Chinese economy was threatened by the real estate crisis and the outbreaks of the coronavirus.

The TPP serves as a parameter for the rates that commercial banks charge for their loans.

China last year adopted regulatory measures to curb speculation, which reduced the real estate industry’s access to resources, causing a crisis in the sector.

But investors regained confidence amid expectations of an easing in regulations, which led to sharp gains in the price of real estate companies such as Agile Group and Country Garden.

Bonds from property developers also rose on Thursday with the news of the interest cut.

China, the world’s second largest economy, this week reported 8.1% growth in 2021, despite the fact that the pace of expansion fell sharply in the second half.

It was also the only major economy to grow in 2020, after bringing the initial Covid-19 outbreak under control.

But the country is currently facing several small pockets of contagion in different parts of the country that have led to targeted lockdowns.

The rate cut “continues the PBOC’s efforts to lower borrowing costs,” said Sheana Yue, China economist at Capital Economics.

For her, the cuts mean that “mortgages will be a little cheaper, which will help increase the demand for housing.”

tjx / rox / cwl / qan / mas / dbh

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