The People's Bank of China (PBC) takes a new step in the rate cut started a week ago to encourage the economy amid a slowdown in activity. This Monday it has announced that the reference rate for five-year loans drops from 4.45% to 4.30%, as it already happened in May. "Most home mortgages are linked to it. This cut is obviously to reduce the burden on mortgagees," says Iris Pang, an economist at ING. It has also reduced the reference rate on one-year loans, from 3.70% to 3.65%.
In this way, it seeks to stabilize the housing market. The country is experiencing tremors in the mortgage sector, with difficulties among construction companies to finish promotions and a strike among thousands of mortgage holders, who refuse to pay their mortgages - made on plan - until they have the home. "The cuts underscore the urgency of containing the worsening housing crisis," said Tommy Xie of OCBC Bank. "Lower mortgage rates could help stabilize sales, especially at a time when household expectations are weak," he added.
While the adjustments had been widely anticipated following last week's rate cut on medium-term loans, the cut in the one-year benchmark rate was less than expected by most analysts surveyed by Bloomberg, while the reduction to the five-year rate exceeded most expectations. "The much larger cut to the five-year rate suggests that the PBOC is particularly worried about problems in the housing market," said Sheana Yue, China economist at consultancy Capital Economics.
In this sense, some local governments are beginning to grant loans to companies to finish houses. "The two measures -types and support for construction companies- should reduce the concern of the mortgaged", adds Pang.
In addition to the mortgaged, with better financing rates "you are more willing to invest in long-term projects, such as infrastructure and renewable energy," believes Chen Jiahe, from Novern Arcae.
