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 PBOC counts on lending to fuel growth with limited impact of cheaper mortgages

BEIJING -- The People's Bank of China kept its benchmark lending rates unchanged for a sixth straight month Monday, focusing on injecting liquidity to bolster an economy hampered by a sluggish real estate market.

The one-year and over-five-year prime rates, the latter of which is used as a reference for mortgages, were left at 3.65% and 4.3%, respectively. But the central bank added a net 199 billion yuan ($28.9 billion) into the financial system through its medium-term lending facility for commercial banks this month, a third straight month of net increases.

Even as most of China's economy is returning to normal after the end of Beijing's zero-COVID policy, the housing market has yet to shake off its malaise. A total of 15 sq. kilometers of newly built housing was sold in major cities in January, the E-House China R&D Institute reports. This was down 5% from February 2022, the month covering most of the Lunar New Year holiday period that year.

Some financial market watchers say the over-five-year prime rate might be cut to stoke demand. The PBOC's decision to stand pat likely reflects a view that such an impact would be limited.

The nationwide average mortgage rate fell to a record low of 4.26% in December, declining 1.37 percentage points in 2022 -- the largest annual drop in seven years.

But while authorities had hoped consumers would sign new mortgages, many homeowners instead are refinancing existing ones to lighten their debt burden. Amid lackluster investment gains in stocks and real estate, some affluent households have put their money toward paying off mortgages early.

Rather than interest rates, the PBOC is focusing on providing more liquidity to banks to encourage lending. New yuan-denominated loans jumped 23% on the year in January to 4.9 trillion yuan, the largest total in data going back to 2002.

Corporate borrowers received 96% of these funds. Part of this is believed to be state-owned financial institutions lending to state-owned enterprises for infrastructure projects, a priority for Beijing.

The government's efforts to boost financial support for developers likely also contributed to the uptick in lending.

China's regulatory crackdown on the sector that began in 2021 left homebuilders without enough money to finish housing already promised to buyers. More than 2,600 projects nationwide reportedly have had consumers make down payments or start repaying mortgages without receiving their properties.

Beijing hopes to spur developers to complete these projects and restore lost trust in the system.

Nikkei Asia