China cuts benchmark lending rate to prop up virus-hit economy

By  Administrator_India,

Capital Sands

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.

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.

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.