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China's decision to deliver its biggest reduction in the benchmark mortgage rate won't create a negative impact on banks' net interest margins, a central bank-backed news outlet said on Tuesday.
The remarks made by the Financial News come after China slashed its five-year loan prime rate (LPR) by 25 basis point on Tuesday, the largest reduction since the loan rate mechanism was revamped in 2019 and far more than analysts had expected.
Net interest margins (NIMs), a gauge that measures the health of a bank, had been trending lower last year against the backdrop of subdued credit demand, prompting major lenders to roll out multiple rounds of deposit rate cuts to improve their profitability.
"An important policy direction in 2024 is to promote the stable developments of the real estate industry, of which moderately lowering household mortgage interest rates is regarded as a key move," the newspaper said on its official WeChat account.
It added that falling mortgage rates would save household interest payments and help a consumption recovery.
The newspaper also said that spillover effects from other major economies are expected to decrease and offer leeway for Beijing to manoeuvre on monetary policy.
"Considering that the Federal Reserve will most likely enter an interest rate cut cycle this year, the inverted interest rate gap between China and the United States is difficult to reverse in the short term," it said.
"Keeping the one-year LPR steady while lowering the five-year rate will not only maintain reasonable support for the real economy, but also balance internal and external conditions to improve our resilience and policy autonomy to counter external shocks."
(Reporting by Winni Zhou and Tom Westbrook. Editing by Sam Holmes.)