China makes biggest-ever cut to key mortgage rate to bolster housing market

China’s central bank has reduced its key mortgage reference rate in an effort to address the ongoing property crisis. The 5-year loan prime rate (LPR) was cut by 25 basis points, marking the largest reduction since the LPR system was revamped in 2019. While the 1-year LPR remains unchanged, this is the first reduction to the 5-year LPR since June 2023. Analysts believe that this rate cut is aimed at supporting the housing market and, when combined with increased credit support to developers, may help to alleviate some pressure on the sector. China’s property market has been in a slump since 2021, triggering defaults by major developers and protests by affected parties. The government has implemented measures such as interest rate cuts and reduced down payments to revive the sector. However, China’s economy is facing other challenges like deflation, low confidence, and capital flight. Investment in the country has also declined significantly. The stock markets have experienced a prolonged slump, with trillions of dollars in market value being wiped out.