SHANGHAI/TOKYO: 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 upended 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), the new benchmark lending gauge introduced in August, was lowered by 10 basis points to 4.0 per cent from 4.15 per cent at the previous monthly fixing.
The five-year LPR was lowered by 5 basis points to 4.75 per cent from 4.80 per cent.
All 51 respondents in a Reuters snap survey had expected a reduction in the LPR, with 38 respondents, or about 75 per cent 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. 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.
Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore, said the LPR cut 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 reserve requirement ratio (RRR) and 10 basis points in the medium-term lending facility (MLF) in addition to what we’ve already seen.”
China’s yuan weakened to a more than two-month low against the dollar after the LPR cut, mainly pressured by further easing expectations.
Jacqueline Rong, senior China economist at BNP Paribas in Beijing, said she had expected a deeper cut to one-year LPR especially as interbank market rates have already posted sharp declines in the past month.
Banks are already setting lending rates well below the benchmark and if government subsidies are taken into account, some borrowers may not pay any interest at all.
Some analysts say the minor cut to the 5-year LPR likely signalled that authorities wanted to avoid stoking a property bubble and causing more damage to the economy in the longer run.
The People’s Bank of China (PBOC) has pledged to use tools such as targeted reserve requirement cuts, relending and rediscount, to support key sectors affected by the outbreak, having already injected over $200 billion in liquidity in a bid to help lower financing cost.
— Reuters
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