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Chinese central bank unexpectedly cuts a key interest rate for loans

Chinese central bank unexpectedly cuts a key interest rate for loans
China's national flag flies in front of the People's Bank of China, the country's central bank, in Beijing on Jan. 18, 2021. The central bank Friday cut a key interest rate for long-term loans. File Photo by Stephen Shaver/UPI | License Photo

May 20 (UPI) -- The Chinese central bank Friday cut a benchmark interest rate for mortgages while keeping other interest rates unchanged.

The People's Bank of China cut the interest rate for loans of five years or more to 4.45% from 4.6%. It was an unexpected cut.

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The bank left the one year loan rate at 3.7%.

U.S. stocks opened higher Friday morning on the China rate cut news.

"We have a growth scare at the moment, coming from China and monetary policy biting in the U.S. So this morning, sentiment was helped with China's action," said Arun Sai, a multi-asset strategist at Pictet Asset Management. "But we still need to build more evidence to convince markets that a soft landing is possible."

The rate cut is expected to help the Chinese housing market by boosting mortgage loan demand.

"The cut in the five year LPR rate reflects the focus on supporting the property sector, in line with the recent relaxation measures," according to Frances Cheung, rates strategist at Oversea-Chinese Banking Corp in Singapore. "The rates market is unlikely to take the unchanged one year LPR as a disappointment."

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According to the Wall Street Journal, the rate cut is the latest in a series of central bank moves in China to support a flagging economy. The moves have included lower cash costs for banks as well as business loan programs.

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