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China on Tuesday cut its market-based benchmark lending rates. The one-year loan prime rate (LPR) is now 3.55 percent, down from the previous reading of 3.65 percent, according to the National Interbank Funding Center. The over-five-year LPR, on which many lenders base their mortgage rates, was lowered by 10 basis points to 4.2 percent.
The reduction in LPRs reflects the need to comprehensively consider and balance various factors, including strengthening macro-policy regulation, expanding effective demand, optimizing the real economy, and preventing and mitigating risks in key areas, when formulating policies to promote sustained economic recovery. The LPR cut is beneficial for facilitating a gradual decrease in borrowing costs for the real economy, financing costs for businesses, and the costs of personal consumption credit. It is also conducive to helping China stabilize investment, promote consumption, expand domestic demand and strengthen basic economic fundamentals.
Given that the pace and intensity of the recovery on the supply side still lag behind that of the sales side, the year-on-year data for available real estate has remained high for several months, compared to last year. Furthermore, the downstream consumption chain related to the real estate sector is still in the early stages of recovery. Real estate enterprises are focusing on revitalizing existing inventory and approaching new projects cautiously. Continuous policy support and protective measures are needed for both the supply and demand sides to avoid a spotty, fragmented and imbalanced recovery.
In this context, simply relying on monetary policy measures – such as lowering mortgage interest rates – cannot fully, effectively, and fundamentally address the combined cyclical, structural, and trend-related challenges in the real estate market. To achieve stable recovery and long-term healthy development in the real estate market, it is crucial for local governments to adjust and optimize their real estate policies in a step-by-step, orderly, flexible, and context-specific manner. Implementing policies tailored to specific cities, districts, and categories, and making the most of the available policy toolbox, while aligning with the central government's supportive measures will ensure effective implementation and the establishment of a long-term mechanism for the real estate market.
Considering the domestic and international economic situation and the timing, effectiveness, and intensity of policy implementation, there is still a possibility of further interest rate cuts and reductions in the reserve requirement ratio (RRR) throughout the year. With China having sufficient policy reserves and a range of policy tools at its disposal, there is no need to exhaust available measures all at once. Key regions and industries that play a crucial role in stabilizing the economy should leverage the combined functions of structural monetary policy tools, focusing on both the overall volume and structure. This approach should be complemented by macroeconomic and industrial policy orientations, as well as financial measures such as policy-oriented financial tools, to increase capital investment and project reserves. These efforts will enable them to effectively lead, radiate, drive, and support economic and social development, foster stability in the macro economy, and serve as engines for high-quality development.
(CGTN)
