China's Central Bank Cuts PSL Rate to 1.5%, Unveils First Nationwide Mortgage Interest Subsidy

What was announced

The PBOC will broaden the PSL facility to support investment in water, power-grid, computing, communications, urban pipeline and logistics networks. It raised the quota for sci-tech innovation and technological upgrading relending by 200 billion yuan to 1.4 trillion yuan, for farm and small businesses by 500 billion yuan to 4.85 trillion yuan, and for private enterprises by 300 billion yuan to 1.3 trillion yuan.

Mortgage subsidy

In a first nationwide measure of its kind, the central bank, finance ministry and financial regulator said China will subsidize interest payments on new commercial mortgages for eligible first-time homebuyers from Oct 1 — an annual interest subsidy of 1 percentage point for up to five years, capped at 1 million yuan per household. At current rates that is roughly a one-third reduction in borrowing costs; a 1-million-yuan long-term loan could save nearly 50,000 yuan in cumulative interest.

Economic backdrop

China aims for 4.5%-5% growth this year, but growth slowed to 4.3% in Q2 while industrial output, retail sales and investment weakened at the start of Q3 and the property sector stayed in a prolonged downturn. "The latest steps send a clear signal that policymakers are prepared to provide stronger support for growth," said Hao Zhou of Guotai Haitong Securities.