China reduced lending standards to revive its faltering economy

China reduced the standard loan rates and decreased the reference of a mortgage by a larger margin on Monday, adding to the easier steps last week, because Beijing increased efforts to revive the economy with the property crisis and the comeback of the COVID cases.

People’s Bank of China (PBOC) is walking on a tight rope in its efforts to save growth. Offering too much stimulus can increase inflationary pressure and the risk of escape from capital due to the Federal Reserve and other economies increasing interest rates sharply.

However, the low demand for credit obliges the hand of the PBOC when it tries to maintain the economy of China to a uniform keel.

The loan rate prior to one year (LPR) was reduced by 5 basis points to 3.65% during the monthly fixing of the Central Bank on Monday, while the five-year LPR was reduced by 15 basis points to 4.30%.

LPR in the past year was reduced in January. The five-year tenor, the last to be lowered in May, affects the price of home mortgage prices.

“All in all, the impression that we obtain from all the recent announcements of the PBOC is that the policy is lessened but not radically,” said Sheana Yue, Chinese economist at Capital Economics.

“We are planning two other cuts of 10 basis points PBOC policy rates during the rest of this year and continue to predict a reserve requirement rate (RRR) reduces the next quarter.”

LPR discounts occur after the PBOC surprised the markets last week by lowering the medium-term loan rate (MLF) and another short-term liquidity tool because a series of recent data has shown that the economy lost momentum in the slowdown in global growth and the increase in borrowing costs.

The stocks of the Chinese developers listed in Hong Kong increased by 1.7%, while the China-listed property stocks were stable in morning deals.

But the concerns about the expansion of the divergence of politicians with other major economies have led to the Chinese Yuan, being down for almost two years. The Yuan Onshore was negotiated for the last time at 6.8232 for a dollar.

In a survey conducted last week, 25 of the 30 respondents predicted a reduction of 10 basis points to the one-year LPR. All those in the survey also projected a reduction in the five-year tenor, including 90% of them predicting a reduction of more than 10 BPS.

China reduced lending standards to revive its faltering economy