Ramit Mehrotra, Pune
China Central Bank declared on Sunday that it would allow the banks to bring down the mortgage rates for home loans in October. They have cut the costs of the medium-term loans for banks in an attempt to ease policies to contain the slowed economy. The People’s Bank of China said that it will slim the rates of $42.66 billion worth of single-year medium-term loans from 2.30% to 2 %. Pan Gonsheng, the governor of PBOC said that the governments are welcome to loan even more money if required.
Less than a week after the announcement of the Federal Reserve’s Bank pinching the interest rates down by 0.5 %, The Chinese Central Bank decreased its fixed seven-day interest rate from 1.7% to 1.5%. PBOC has instructed the commercial banks to be authorized to reduce the interest by half a percentage point, depending upon the assets held at reserve. This move will liberate the banks from the consequential burden of loaning $140 billion to organizations and households.
The Central bank has also made it easier for banks to lend money to organizations to purchase shares again and buy larger stakes in the company. The decision has received a positive response from the investors and the stock market.
PBOC will chop down the mortgage rates by 50bps on average. The decision is a part of the sweeping measures to boost the country’s dilapidated real estate market as the economy slows down. Across China, the tendency to pump the sales activity and maintain liquidity has met with many hurdles, mainly buyers unwilling to buy properties. In addition, Guangzhou City has taken away all restrictions on home purchases, while Shanghai and Shenzhen have eased curtailments on real estate purchases and curbed the minimum downpayment ratio for first-time home buyers, not beyond 15%.
By reducing the borrowing cost, the PBOC intends to bolster more consumption and spending and spark up the housing market, which has seen a decline in the past couple of weeks. China’s economy is the world’s second-largest economy in the world. And has been struggling to find a stronger footing, post-pandemic, due to continued deflation and staggering levels of unemployment. The real estate crisis is a prolonged battle they have been fighting ever since the pandemic broke.