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What next for China’s central bank

China's Central Bank
ChinaFotoPress | Getty Images
China's Central Bank

China's most recent effort to prop up its softening real estate market is not enough, analysts say, noting that a series of interest rate cuts from the central bank is the best remedy.

"I'm virtually certain we'll see further interest rate cuts and a lot more easing, probably bank reserve requirement ratio (RRR) cuts, in the coming months," Macquarie Asset Management's Senior Portfolio Manager Sam Le Cornu told CNBC. "I think people are underestimating the degree of liquidity that will be put into the market and the number of interest rate cuts."

Chinese homebuyers were given a break on Monday after authorities lowered the threshold of down payments on mortgages for second homes to 40 percent from 60 percent and waived the business tax on the resale of property after two years.

The measures follow Beijing's effort to spur the economy by cutting interest rates twice since November and lowering the reserve requirements of major banks. But that isn't enough for many investors who continue to call for further easing.

"[China still needs] further across-board monetary policy easing," Nomura's China economics team said in a note on Monday. It expects "more policy easing, with three more interest rate cuts and three more reserve requirement ratio cuts over the remainder of 2015."

However, Nomura believes that Mondays' move will "see the pace of property market correction stabilizing in the second half of the year."

Crunching real estate

Monday's move comes amid growing concerns over slowing economic growth.

China set its 2015 growth target "at around 7 percent" in early March – it's lowest target in 11 years – after posting its slowest annual growth rate in 24 years in 2014.

The housing sector accounts for around 15 percent of China's economy, and recent housing data suggests that growth continues to slow.

In February, new home prices fell for the sixth consecutive month amid tepid demand, according to Reuters calculations based on National Bureau of Statistics data. Prices fell an annual 5.7 percent, marking the largest drop since the current data series began in 2011.

But the measures introduced on Monday should help slow the trend, analysts said.

"These measures are positive for housing demand in the short term, especially in top-tier cities," although they may not be enough to boost investment, which is important for gross domestic product growth forecasts, said Nomura in the note.

Bigger picture

The latest effort to support the housing sector follows comments from central bank governor Zhou Xiaochuan over the weekend about fighting deflation and indicates that Chinese authorities are willing to take action to keep the economy on track, analysts say.

"Whether the current measures are able to support the property market remains uncertain. Nevertheless, it is getting clearer that growth has again topped policy makers' mind," said OCBC Bank in a note.

Others agreed: "This move is part of Beijing's broader package of policies to stabilize economic growth and check disinflationary pressures," HSBC chief China economist Qu Hongbin said in a note.

Qu expects a rate cut possibly in the coming weeks.

"We expect a 50 basis point cut to the policy rate and 200 basis point cut to the reserve ratio in 2015 and look for the next cut to take place in the coming months, if not weeks," he said.