China cuts benchmark lending rate to prop up virus-hit economy
SHANGHAI (Reuters) – China cut the benchmark lending rate on Thursday, as widely expected, as the authorities move to lower financing costs for businesses and support an economy jolted by a severe coronavirus outbreak.
The epidemic has disrupted global supply chains and caused widespread disruption to businesses and factory activity in China, prompting authorities to deliver a steady stream of policy measures over recent weeks to cushion the blow to growth.
The one-year loan prime rate (LPR) was lowered by 10 basis points to 4.05% from 4.15% at the previous monthly fixing.
The five-year LPR was lowered by 5 basis points to 4.75% from 4.80%.
All 51 respondents in a Reuters snap survey had expected a reduction in the LPR, with 38 respondents, or about 75% of participants, tipping a 10 basis points cut to both tenors.
Mayank Mishra, macro strategist at Standard Chartered (LON:) Bank in Singapore, said the cut to LPR was in line with expectations, but it may not be enough to overcome the economic impact of the virus.
“The Chinese authorities are sending a message that easing will happen, but it will happen at a measured pace. They do not want fuel expectations that they will be easing aggressively,” Mishra said.
“We expect more monetary easing in the form of 100 basis points in the required reserve ratio and 10 basis points in the medium-term lending facility in addition to what we’ve already seen.”
The LPR cut followed a similar move in the central bank’s medium-term lending rate on Monday as policymakers sought to ease the drag to businesses from the coronavirus outbreak.
Investors are betting the authorities will roll out more monetary easing and fiscal stimulus in the near term to help smaller businesses that are struggling to tide over the crisis.
China reported a dramatic drop in new cases in the province at the heart of the coronavirus outbreak, official data showed on Thursday, though the death toll so far at over 2,000 has made it one of the biggest health emergencies in recent decades. Scientists reported the new virus may spread even more easily than previously believed.
The world’s second-biggest economy, already grappling with growth at its weakest in almost three decades, had shown some signs of stabilization just before the epidemic hit.
When compared with a year earlier, first-quarter growth could slump to 4.5% from 6.0% in the fourth quarter, according to the latest Reuters poll. Some analysts warn of even lower growth closer to the 3% mark, underlining the widespread business disruption caused by the virus.
The LPR is a lending reference rate set monthly by 18 banks. The People’s Bank of China revamped the mechanism to price LPR in August 2019, loosely pegging it to the medium-term lending facility rate.
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Source : Reuters Link