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Sept. 24 (UPI) -- China's central bank Tuesday cut mortgage interest rates, the minimum downpayment for homebuyers and said it would soon slash the size of the contingency cash buffer banks must keep on one side in a bid to boost growth in the world's second-largest economy. People's Bank of China Gov. Pan Gongsheng announced the imminent half-percentage point cut in the so-called hold reserve requirement ratio for banks to 6.5% at a news conference in Beijing.
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Reducing the RRR -- the ratio of liquid assets to total customer deposits a bank must hold in reserve -- would release about $141.8 billion in long-term liquidity to the financial markets, according to Pan who added that another cut may be in the cards before the end of the year.
The bank also intervened to support the country's troubled property sector, lowering by an average half percentage point rates on existing home loans to bring them in line with new mortgages.
"The new policy, which is conducive to further reducing borrowers' mortgage interest expenses, is expected to benefit 50 million households, or a population of 150 million," said Pan.
The move would save households $21.3 billion a year in interest which, together with reducing the minimum down payment for second homes from 25% to 15% in line with first homes, would provide a significant boost to domestic consumption and investment, he added.
Pan also announced the PBOC would increase support for a $42.6 billion re-lending program announced in May for state-owned enterprises to buy up unsold homes and resell them as affordable housing, saying the bank would now fully fund the purchases.
Previously, the proportion of the purchase price provided by the bank was restricted to 60%.
"This adjustment will help accelerate the reduction of inventory in the commercial housing market," Pan said.
China has a glut of unsold apartments and houses that have built up since a sharp downturn in the sector began in 2021 and huge numbers of developments that have been left unfinished.
Overstretched developers are heavily indebted, threatening a massive network of sub-contractors and suppliers, and some have defaulted on loans and bond payments.
One of the largest, China Evergrande, was forced into liquidation in January by a court in Hong Kong, with liabilities in excess of $300 billion, while Country Garden narrowly escaped the same fate in July when it was granted a six-month reprieve to come up with a plan to restructure liabilities of $187 billion.
The PBOC laid out plans for new monetary policy tools to "support the stable development of the stock market" with a $71.1 billion swap scheme for securities, funds and insurance companies to access funds to invest in shares and a $42.6 billion re-lending facility for bank loans to listed companies and their major shareholders for buybacks and increasing stakes.
The swap program would enhance the companies' ability to acquire funds and increase their stock holdings "significantly," said Pan who stressed that funds obtained through the scheme could only be used for investment in the stock market.
The interest rate for the initial lending program would be set at 1.75% for commercial banks, which could lend to customers at an interest rate of 2.25%.
Pan said the swap scheme could be expanded in the future and the re-lending program repeated, dependent on market conditions.
Stocks and Chinese government bonds staged strong rallies Tuesday on the central bank stimulus measures.
In Hong Hong Kong, shares surged across the board posting their largest gain in 18 months led by financial and property chips, with the Hang Seng Index closing 4.1% higher at 19,000.56.
In Shanghai, the market reacted equally strongly with the Composite climbing to end Tuesday up 4.2% while the CSI 300 Index added 4.3%.
Chinese government bond prices also jumped as yields -- a window into future interest rates -- sank to record lows.
The yield on China's 10-year and 30-year government bonds fell to 2.041% and 2.168% respectively, both record lows.
CNBC reported that the easing cycle initiated by last week's half-percentage point rate cut by the U.S. Federal Reserve could provide space for China to counter deflationary pressures and additional stimulus with a cut of its own.
