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China cuts lending rates a week after surprise policy rate cuts

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A man looks at his smartphone as he walks past the People’s Bank of China building on May 20, 2022 in Beijing.

Jiang Qiming | China Information Service | Getty Images

While the reduction in the LPR may provide short-term relief, the easing of liquidity alone is unlikely to lead to a recovery in the housing market.

Positive reactions to last week’s rate changes were short-lived, analysts such as Navigate Commodities chief executive Atilla Widnell said.

“Further monetary easing/stimulus has been seen as as futile as ‘casting a dead horse’, given that the Chinese economy desperately needs consumers to return to the streets to spend money,” he said. he stated in a note.

Regarding the latest round of cuts, David Chao, global market strategist for Asia-Pacific (ex-Japan) at Invesco, said he was referring to the severity of the housing market downturn.

However, he conceded that these cuts will not be enough to increase liquidity.

“This sends a strong message that policymakers are ready to take stronger action to stabilize the struggling market,” he said in a note.

“While the reduction in the LPR may provide short-term relief, the easing of liquidity alone is unlikely to lead to a recovery in the property market.”

He added that lower mortgage rates had so far not translated into increased property sales, “due to lack of confidence in large developers and the pre-sale model”.

Chao said he did not expect these monetary policy fixes to be the last of the Chinese authorities, especially when “central and local governments have the financial tools to deliver a 3 trillion yuan surplus. in order to stimulate the real estate sector”.

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