China's leading banks will lower interest rates on existing mortgages from October 25, following a Central Bank directive aimed at easing financial pressure on homeowners. The move aligns with anticipated economic incentive measures, as Finance Minister Lan Fo'an is expected to reveal a package focused on economic recovery. Recent measures include rate cuts and relaxed home buying rules, but analysts believe more is needed. An incentive of around two trillion yuan (USD 283 billion) is expected, focusing on real estate, consumption, and infrastructure. Analysts warn that anything less may disappoint markets, especially after a recent briefing failed to introduce new initiatives.
China's major banks will reduce interest rates on existing mortgages starting October 25, according to state media reports last week. This decision follows a directive from Beijing's Central Bank to ease the financial strain on homeowners. The announcement coincides with Finance Minister Lan Fo'an's expected unveiling of additional fiscal stimulus during a highly anticipated press conference in Beijing last week. In recent weeks, Chinese policymakers have introduced a series of incentive measures to rejuvenate an economy struggling with a prolonged property sector crisis and persistently weak consumption.
The recent measures have included various interest rate cuts and a relaxation of homebuying regulations, though economists have noted that further steps are necessary to fully lift the economy out of its prolonged downturn. According to a report by state broadcaster CCTV, except for second mortgages in key cities like Beijing, Shanghai, and Shenzhen, the interest rates on other eligible mortgages will be lowered to at least 30 basis points below the prime lending rate, which serves as the central bank's mortgage benchmark. CCTV also reported that major banks, including the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank, would implement the adjustments progressively.
According to CCTV, the banks announced that the adjustments would be applied automatically, with customers not needing to apply for them. Last month, the People's Bank of China instructed commercial banks to lower these rates by October 31. Beijing has indicated that Finance Minister Lan will use Saturday's briefing to discuss "countercyclical adjustments in fiscal policy" aimed at fostering high-quality economic development.
While specific details remain limited, analysts and investors surveyed by Bloomberg predicted that Beijing would announce an incentive package worth two trillion yuan (USD 283 billion), marking its largest support program since the aggressive measures during the global financial crisis. Gary Ng, a senior economist for Asia Pacific at Natixis, told AFP that he expected the Chinese government to introduce "two to three trillion yuan" in ultra-long-term government bond issuance.
Ng highlighted that any stimulus package smaller than this amount would likely lead to further market disappointment, especially after a decline in stock prices earlier in the week following the October 8 briefing, which did not introduce any new measures. He also noted that the expected measures would probably focus on the real estate sector, boosting consumption, and enhancing infrastructure.
China's plan to reduce interest rates on existing mortgages, starting October 25, highlights its broader efforts to address economic challenges. Recent incentive measures, including rate cuts and relaxed home buying rules, aim to revive an economy struggling with a property sector crisis and weak consumption. Analysts anticipate a major incentive package of around two trillion yuan, likely focused on real estate, consumption, and infrastructure. However, any smaller action may disappoint markets, especially after the lack of new measures at an earlier briefing. The government's next steps will be crucial for stabilizing investor confidence and driving economic recovery.
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