China cut its five-year prime loan by 25 bps while keeping 1-year loan rates the same. The 5-year rate is the key mortgage rate. The PBOC cut reserve requirements by 50 bps on February 5th.
All of this is being done to improve the real estate market which has been languishing with developers facing an ongoing credit crisis. This cut may not solve the problem because China is dealing with a balance sheet problem not a cost of borrowing problem. The cut will not help banks which are already facing a problem of lower net interest margins. Home prices are falling. Investors are not interested in buying given the structural problems that developers may not finish projects. The cost of capital does not matter when you don't think the principal will hold value.
Rates have been falling for years. Prices are declining not just seeing slower inflation. China is an economy that is sick and the cure is not going to be just lowering rates. There is now a real estate confidence problem which is not a credit pricing problem.
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