SHANGHAI (Reuters – China has cut its benchmark rate for mortgages unexpectedly by a wide margin. It is Beijing’s second such cut in a year. Beijing wants to stimulate credit demand and support the economy.

Officials have promised to take further steps to stop a slowdown at the world’s second biggest economy. The country was struck by COVID-19, which caused severe disruptions and prompted tighter mobility restrictions.

Many market participants feel Friday’s decision was also in response to Premier Li Keqiang calling for swift policy reforms and a return to normal.

China has lowered the 5-year loan prime rate (LPR), by 15 basis point to 4.45% in monthly fixes. It is the greatest reduction since China changed the system in 2019. At 3.70%, the one-year LPR remained unchanged.

LPR refers to a monthly lending rate that is set by 18 banks. It is announced each month by the People’s Bank of China. The five-year LPR is used by banks to price mortgages. However, most loans are priced using the one-year rate. In January, the rates were both lowered to stimulate the economy.

Marco Sun (chief financial market analyst, MUFG bank), stated that Friday’s cuts suggest that China’s economic growth is facing greater resistance this year.

Sun explained that the government had cut the LPR for five years to speed up recovery of the realty sector. He added that they did not lower the LPR one year because there was ample liquidity in the bank system.

A Reuters snap poll revealed that 18 traders and analysts (or 64%) predicted a decrease in the rate. Twelve respondents also forecasted 5-basis points cuts for each tenor.