(Bloomberg) -- China’s ruling Communist Party vowed to explore new measures to tackle a protracted housing crisis, which remains the biggest drag on the nation’s economy, and hinted at possible rate cuts ahead.

Officials will research ways to deal with unsold properties, as well as “make flexible use” of tools to support the economy and lower overall borrowing costs, a meeting led by Chinese President Xi Jinping agreed, the official Xinhua News Agency reported Tuesday. 

Those tools outlined by the 24-man Politburo included interest rates and the reserve requirement ratio, which determines the amount of cash banks must set in reserve. That was the first time a readout from the elite group had mentioned either policy tool since April 2020, when China’s economy was reeling from the outset of the pandemic.

Chinese government bonds rallied after the readout, pushing the benchmark 10-year yield down most since March, on bets officials will keep policy loose to bolster growth. The yuan retained a loss of 0.2% amid gains in the dollar.

“The Politburo meeting shows that the top-level policy stance remains supportive,” said Lynn Song, Greater China chief economist at ING Bank. “Mentioning the interest rate is a positive development, in our view, as the previous focus was on RRR.”

Speculation over more easing in the real estate sector mounted ahead of the meeting. Property stocks saw the biggest rally this week in more than a year. China’s private developers face a 4 trillion yuan ($552 billion) funding gap to complete pre-sold homes, adding to the woes of an industry that has yet to bottom out, Goldman Sachs Group Inc. said in a research note in April. 

A decline of real estate development investment widened to 9.5% in the first quarter from 9% in the first two months, latest official data showed. Home sales and prices also continued to shrink in March. 

The Politburo’s language on the property market “indicates we may witness additional measures in the coming months” that involve more demand-side interventions, said Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp.

Policymakers reaffirmed monetary policy should be “prudent” while fiscal policy should be “proactive,” during the session. The top-decision making body also announced Xi will convene senior party officials in July for a delayed, closed-door conclave called the third plenum that will be scrutinized for signs of long-term reforms.

The Politburo’s April meeting is one of its three annual huddles to focus on the economy, and is closely watched for signals of policy shifts. Such events have become more important since Xi moved more economic decision-making out of government bodies and into party groups during his campaign to consolidate power.

This month’s meeting came after China’s economy grew 5.3% in the first quarter, blowing past economist expectations and boosting confidence in the government’s ability to meet its ambitious annual GDP growth target of about 5%. A tapering off of those green shoots in March, however, had led analysts to call for more measures to ensure Beijing maintained that momentum.

Policymakers showed signs of support ahead. The Politburo called for faster issuance of special sovereign and local government special bonds — a major source of funding for infrastructure projects. That came after fiscal support in the first quarter slowed from a year ago, measured by the budget deficit as a percentage of the economy.

Top leaders also vowed to avoid slipping into complacency, after banking strong early growth numbers in 2024. “We should avoid slacking off after making good efforts to concretely consolidate and strengthen the recovery momentum of the economy,” they said.

That suggests lessons have been learned from last year, when growth slowed more than expected in the second quarter after a robust beginning to the post-pandemic reopening period. 

“A more supportive fiscal stance would help to boost domestic demand,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, who said the rate cut signal was a “surprise” given pressures on the yuan.

Hotter-than-expected inflation in the US has decreased the likelihood of a Federal Reserve rate cut anytime soon, leading analysts to believe China’s central bank had less room to make rate trims. The People’s Bank of China last lowered its policy rates in August. 

Officials also reaffirmed a pledge to expand domestic demand, showing support for a consumer product trade-in and equipment upgrade program. Another focus was advancing “new productive forces” — a slogan that refers to technology and emerging sector.

The meeting shows top leaders are aware of concerns that “policy implementation may ease up after a better-than-expected first quarter,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “The probability of achieving the around 5% growth goal has increased.” 

--With assistance from Josh Xiao, Lulu Yilun Chen, Wenjin Lv, Emma Dong and Ben Holland.

(Updates with more context.)

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