The first Chinese interest-rate cut in more than two years is a stark recognition that the world's second-biggest economy is in trouble.
After years of piling ever more public debt onto the national balance sheet, it makes sense to have the People's Bank of China take the lead in propping up gross domestic product. Yet while today's benchmark rate cut should help stabilize growth, the move also adds to worries about looser credit that could pose risks to the global economy. Case in point: mortgages.
Earlier this year, Chinese officials took several stealthy steps aimed at stabilizing the property sector and bolstering GDP growth. The China Banking Regulatory Commission loosened lending policies. Even before cutting the one-year lending rate to 5.6 percent and the one-year deposit rate to 2.75 percent today, the central bank had cut payment ratios and mortgage rates, while prodding loan officers to ease up on their reluctance to approve borrowers without local household registrations. Pilot programs for mortgage-backed securities and real-estate investment trusts got more support. Incentives were rolled out to encourage high-end buyers to upgrade properties.
Read Full Article HERE