Coronavirus impact: China cuts loan rate

Daniel Fowler
February 21, 2020

The Australian dollar fell to new decade-plus lows on Thursday after China's central bank cut key interest rates to try and support the economy hit by the COVID-19 virus.

The move was widely expected, following widespread disruption to businesses, factories and supply chains in China as a result of the novel coronavirus (Covid-19) outbreak.

The cut followed a similar move in the central bank's medium-term lending rate on Monday.

The central bank lowered the interest rate for the medium-term lending facility (MLF), a major reference rate for the LPR, by 10 basis points on Monday, while injecting 300 billion yuan (about 42.8 billion US dollars) into the financial market through reverse repos and MLF.

That leaves investors betting there's more monetary and fiscal stimulus to come.

On currency markets, the Chinese yuan weakened to a more than two-month low.

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China's banking sector may face a surge of up to 7.7 trillion yuan ($1.10 trillion) of non-performing loans (NPLs) in 2020 if the coronavirus outbreak doesn't peak until April, credit agency S&P Global estimated on Thursday.

Policy sources have told Reuters the government plans to roll out more support measures as the virus outbreak, which has killed more than 2,100 people in China and infected over 74,000, is expected to have a devastating impact on first-quarter growth.

Reuters explained that the LPR LPR is a lending reference rate set monthly by 18 banks.

The outbreak is threatening to put a dent in the global economy, with China paralysed by vast quarantine measures and major firms such as iPhone maker Apple and mining giant BHP warning it could damage bottom lines.

The PBOC announced a plan to reform the LPR mechanism in August 2019, to better reflect market changes in a bid to guide borrowing costs lower to support the real economy.

Second death confirmed in Hong Kong
But in recent weeks local infections have increased among residents with no history of travel to China . He traveled to Wuhan on a high-speed train on January 21 and returned to Hong Kong two days later.

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