As expected China cut its key loan prime rates (LPR) on Monday but that that still leaves the rates the highest among major economies.
The rate on the one year loan was lowered by 20 basis points from 4.05% to 3.85%, while the five-year rate was cut by 10 basis points, from 4.75% to 4.65%.
It was the second such cut this year, as China moves to support an economy weakened by the COVID-19 shut down and struggling to rebound as it faces a grim economic outlook in major markets like Japan, Europe, the US, South Korea, and Australia.
The cut follows last week’s 20 point cut in the other key indicator rate, the medium lending facility to 2.95%.
Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages.
The smaller cut in the five-year rate tells us the Chinese government is still worried about the chances of a property price surge if credit becomes too cheap or freely available.
The cut came after news on Friday that the Chinese economy shrank 6.8% in the first quarter from a year earlier as the virus and tough containment measures shut down the economy and put millions out of work.
That was the first contraction since at least 1992 when quarterly records were first published. Retail sales, investment, and production also dropped sharply in March.
Central banks have rolled out unprecedented stimulus measures in recent weeks to mitigate the economic fallout from pandemic lockdowns and to keep companies and consumers afloat.
But China’s monetary stimulus has been far less than elsewhere these key rates are well above the 0% to 0.25% most central banks are running at the moment (and negative rates in Europe and Japan).
The PBOC has increased its policy easing since the outbreak intensified in mid-January, (reserve asset ratios for all banks have been cut at least twice this year, freeing up hundreds of billions of dollars for new loans) while the government has announced a host of fiscal measures from cheap loans to tax cuts and special bonds to fund infrastructure projects.
But China’s response to the crisis so far has been less aggressive the massive $US586 billion stimulus it deployed during the global financial crisis.
The impact of the COVID-19 pandemic was also seen in Japan, as data showed dropped more sharply than expected last month.
Exports declined 11.7% in March from a year earlier due to weakness in demand for cars, auto parts and ships, the Ministry of Finance said Monday.
Imports also fell 5%, resulting in a trade surplus of 4.9 billion yen ($US45.6 million).
Some economists said the results may not fully reflect the negative impact of the pandemic, because lockdowns in some regions didn’t start until late March. That means April’s fall could be larger, while imports will be down sharply because of the collapse in oil prices.
Exports to the US saw a large decline of 16.5%, while shipments to China dropped 8.7%.
Meanwhile, Reuters reported that Japan’s economic stimulus package will be revised to 117.1 trillion yen ($US1.086 trillion) from 108.2 trillion yen, boosted by the expansion of a cash payout scheme aimed at lessening the pain from the coronavirus outbreak.
