China has made headlines again by cutting the Loan Prime Rate (LPR) for the third time this year, marking the most significant reduction to date. On October 21, authorities announced a 25 basis points drop in both the one-year and five-year LPRs as part of an effort to invigorate the economy and the housing market. Experts believe this initiative will solidify a foundation for economic recovery while aligning with new housing policies to stimulate the real estate sector.
The People’s Bank of China authorized the National Interbank Funding Center to announce that the one-year LPR for October is now at 3.1%, while the five-year LPR stands at 3.6%, both down 25 basis points from September.
So far this year, the one-year and five-year LPRs have been cut by 35 and 60 basis points, respectively.
Dong Ximiao, Chief Researcher at Zhonglian Finance, stated that this reduction will encourage further drops in loan interest rates for businesses and individuals, effectively lowering financing costs for operational entities and stimulating demand for effective financing.
Pang Ming, Chief Economist for JLL Greater China, explained that the recent 25 basis point cut considers various factors, including a more complex and severe external environment and the need to strengthen the basis for economic improvement. Additionally, this adjustment aligns with the changes in mortgage rates for newly issued loans and existing loans, promoting stability and recovery in the real estate market.
With the simultaneous reduction of the five-year LPR, Yan Yujin, Deputy Director of the Shanghai E-House Real Estate Research Institute, noted that this will continue to reduce costs and monthly repayment pressures for Chinese homebuyers.
According to reports, for a loan of 1 million RMB over 30 years, this latest cut could save buyers more than 130 RMB in monthly repayments, totaling a reduction of approximately 48,000 RMB in interest. With the cumulative decline of 60 basis points in the five-year LPR this year, it’s projected that mortgage rates in China may drop by over one percentage point.
Prior to this, Pan Gongsheng, the Governor of the People’s Bank of China, hinted at the upcoming LPR cut during a financial forum in Beijing on October 18. This announcement follows a series of loosening measures aimed at regulating the housing market. He mentioned that further cuts to the reserve requirement ratio could be considered by the end of the year, depending on market liquidity conditions, and that the LPR would likely see a reduction of 20 to 25 basis points.
Pan also emphasized the need to enhance the monetary policy framework, placing significant importance on promoting reasonable price increases and paying greater attention to the roles of interest rates and other price-based control instruments.
