China lowers benchmark mortgage rate for first time in nearly two years

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A man checks the phone at Lujiazui financial district in Pudong, Shanghai, China March 14, 2019. REUTERS/Aly Song

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SHANGHAI, Jan 20 (Reuters) – China cut key rates for business and household loans for a second consecutive month at its January fixing on Thursday, while lowering a benchmark mortgage rate for the first time in nearly two years.

The one-year loan prime rate (LPR) was cut by 10 basis points to 3.70% from 3.80% and the five-year LPR was cut by 5 basis points to 4.60% from 4 .65%.

The five-year LPR reduction was the first reduction since April 2020.

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The LPR cuts were well expected after official comments called for more monetary easing to support the wider economy.

All 43 participants in a Reuters snap poll predicted a one-year LPR cut for a second consecutive month. Among them, 40 respondents also foresee a reduction in the LPR rate over five years. Read more

China’s central bank “should hurry up, keep our operations forward-looking, move forward on the market curve, and respond to general market concerns in a timely manner,” the vice-president said on Tuesday. – Governor of the People’s Bank of China, Liu Guoqiang, reinforcing market expectations for more stimulus to help economic stability. Read more

Liu’s comments followed an unexpected reduction in borrowing costs for medium-term loans earlier this week, after December economic data showed further weakening in consumption and a struggling real estate sector, two drivers major growth. Read more

Interest rates on medium-term loan facilities (MLF) now serve as a guide to the LPR. Market participants believe that the switch to LPR should mimic the adjustments in MLF rates.

Most new and existing loans in China are based on the one-year LPR. The five-year rate influences mortgage pricing.

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Reporting by Winni Zhou and Andrew Galbraith; Editing by Muralikumar Anantharaman and Christopher Cushing

Our standards: The Thomson Reuters Trust Principles.

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