China announces greater-than-expected key mortgage rates cut in Feb.

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A man walks past the headquarters of the People's Bank of China, Beijing, China, February 20, 2024. /CFP

China's over-five-year loan prime rate (LPR) – a key benchmark for mortgage rates – dropped by a higher-than-expected 25 basis points on Monday to 3.95 percent, after staying put for seven consecutive months.

The one-year LPR remained unchanged at 3.45 percent, according to an announcement by the People's Bank of China. This adjustment triggers a corresponding reduction in the national mortgage rate to 3.75 percent, lowering interest payments for new and existing borrowers.

Analysts say the move can save mortgage borrowers' interest costs, promote investment and consumption, and help support the healthy development of the real estate market.

Bruce Pang, chief economist at JLL Greater China, sees the latest monetary policy actions as a way to cut financing costs steadily, stabilize the exchange rate of the yuan and strike a balance between economic recovery and preventing funds from being idle.

The cut, which exceeded expectations, is set to boost demand, stabilize the real estate market and prevent a wave of early mortgage repayments, said analysts at the China Minsheng Bank, Wen Bin and Zhang Liyun, in a note. They see it as a positive signal for market confidence and a step towards a "soft landing" for the real estate industry.

In addition, lowering the LPRs can also release more positive monetary policy signals to boost market confidence, they added.