The People’s Bank of China has maintained a key interest rate that guides the mortgage market, the prime rate for five-year loans, and has reduced the one-year benchmark less than expected, used mainly for loans to companies and families. The decision is shallower than the market expected and leaves more confusion among investors, which has resulted in markets falling.
The resolution shows the difficult situation in which the country and the sector find themselves, which must decide between making financing cheaper to spur a demand and activity that are going down or safeguarding the stability of the banking system, which with lower rates reduces its income and profitability.
After what was decided today, the five-year prime rate for companies and individuals remains at 4.2%, while one-year rates fall by ten basis points, from 3.55% to 3.45%, below 15 points expected by the market consensus. From Goldman Sachs they point out that the protection of the banks’ margins has prevailed and argue for this the smaller cut than expected. Nor is it clear that the best way to boost the ailing housing market, which accounts for about a quarter of the economy, is to make access to finance cheaper.
As confidence continues to be one of the key factors to improve, “the disappointing cut would not help build confidence,” says Goldman Sachs. With this premise, the Hang Seng, the reference index in Hong Kong, has dropped 1.82%, extending the previous bad week, the worst in about five months. The CSI 300, which brings together the main listed companies, has fallen somewhat less, 1.44%.
The Chinese government faces increased urgency to shore up growth in the world’s second-largest economy as demand for loans plummets, production slows or deflationary pressures take hold.
The reduction in preferential interest rates this Monday is added to the decision adopted last week by the central bank to reduce by surprise the interest rate of its one-year bank loans by 15 basis points, to 2.5% , minimums since 2020.
