China’s Housing Prices Decline for the 8th Consecutive Month

China’s new home prices fell for the eighth consecutive month in February, according to official statistics released on Friday, despite a host of measures aimed at stabilizing the shaky property industry.

According to Reuters calculations based on National Bureau of Statistics (NBS) data, new property prices declined 0.3% month on month, matching the decline in January. Prices decreased 1.4% year on year, outpacing January’s 0.7% dip and marking the largest drop in 13 months.

Since 2021, the property sector has lurched from one crisis to the next, after a regulatory crackdown on developers’ high borrowing, which caused a liquidity crisis.

So far, authorities have not provided major stimulus to developers, instead taking modest moves to revitalize the sector.

Premier Li Qiang promised to stabilize the property industry with targeted steps while supporting “justified” projects in his government’s work report to parliament earlier in March.

In January, China implemented a “white list” procedure, requiring state banks to increase financing to residential projects. More major cities, like as Shanghai and Shenzhen, have also relaxed purchasing restrictions in order to attract home buyers.

China’s Central Bank Hold Key Rate

Meanwhile, China’s central bank held a key policy rate steady while withdrawing cash from a medium-term policy lending operation on Friday, as policymakers remained focused on currency stability despite uncertainty over the timing of planned Federal Reserve interest rate reduction.

Over the last few years, the Federal Reserve’s historic monetary tightening has supported the dollar while putting pressure on the Chinese currency. Cutting rates ahead of a move by the Fed or other major central banks would widen yield differentials, perhaps placing additional pressure on the domestic currency.

The People’s Bank of China (PBOC) said that the interest rate on 387 billion yuan ($53.80 billion) in one-year medium-term lending facility (MLF) loans to selected financial institutions will remain constant at 2.50% from the previous operation.

With 481 billion yuan worth of MLF loans slated to expire this month, the procedure resulted in a net drain of 94 billion yuan from the banking system. It was the first cash withdrawal using the liquidity tool since November 2022.

According to an online statement, the central bank’s lending operation on Friday “fully met financial institutions’ demand” to keep banking system liquidity sufficiently ample.

“Net cash withdrawal is an obvious signal, echoing the content of the government work report on preventing idling of funds,” said Xing Zhaopeng, senior China analyst at ANZ.

“Given major commercial banks have not yet lowered deposit rates again, chances of another policy rate cut are low.”

In a Reuters poll of 36 market analysts, 32, or 89%, predicted the central bank to maintain the borrowing cost for one-year MLF loans.

China has set an ambitious 5% economic growth target for 2024, aiming to alter the country’s development model and mitigate dangers posed by insolvent property developers and indebted towns.

Last week, PBOC Governor Pan Gongsheng stated the bank will maintain the yuan relatively stable and issued a dovish message to the market by stating that China had “rich monetary policy tools at its disposal.”

Investors have already increased their bets that policymakers will implement other monetary easing measures, including a significant reduction in bank reserves, to assist the world’s second-largest economy.

The MLF operation “may suggest that a reserve requirement ratio (RRR) cut is forthcoming,” said Frances Cheung, rates strategist at OCBC Bank. “There may be a plan to replace some of the MLF with liquidity via an RRR cut. After all, officials have strongly hinted at a reduction in RRR.

The central bank also injected 13 billion yuan through seven-day reverse repos while keeping the borrowing rate unchanged at 1.80%, according to a statement.