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China raises support for economic growth by cutting lending rate

22 May '22
2 min read
Pic: Dreamstime.com
Pic: Dreamstime.com

China recently cut the market-based benchmark lending rate to shore up the economy. The over-five-year loan prime rate (LPR), on which many lenders base their mortgage rates, fell by 15 basis points to 4.45 per cent, said the National Interbank Funding Centre. This is the largest reduction in such rate since the country revamped the LPR mechanism in 2019.

The one-year LPR stood at 3.7 per cent, unchanged from one month earlier, an official news agency reported.

The monthly-released data is a pricing reference rate for banks and is based on rates of the central bank's open market operations, especially the medium-term lending facility rate.

The latest rate cut followed a recent move to allow commercial banks to reduce the lower limit of interest rates on home loans by 20 basis points for first-home buyers, based on the LPR.

China's real estate sector, a vital sector for economic growth, is taking a hit as recent COVID-19 resurgences and the volatile global situation impacted the economy.

The country's economy took a hit from the domestic resurgence of COVID-19 cases in April. Authorities have stressed the negative impact will be short-lived.

China has taken steps to revive the economy and help enterprises tide over tough times. These steps include increasing re-lending quotas, launching re-lending arrangements for technological innovation, elderly care services, clean use of coal, and encouraging local banks to issue more inclusive loans for small and micro businesses through market-based means.

The central bank announced a cut in reserve requirement ratios for financial institutions in April, adding long-term and stable capital sources for the country's financial institutions.

Measures, including tax refunds and fee cuts, the deferral of social security contribution payments, and the smoothing of industrial and supply chains, have also been taken to support market entities.

Central authorities have called for an accelerated pace and ramped-up efforts to implement macro policies, and urged local governments to put forward more measures in May to bring the economy back on track.

Fibre2Fashion News Desk (DS)

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