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Interest rate cuts expected after Chinese economy contracts for the first time

17 Apr 2020 06:14 PM

According to a Reuters poll of analysts, China is widely expected to cut its record lending rate on Monday to provide more support to the economy affected by the coronavirus, which contracted for the first time in the first quarter.

All 52 respondents expected a decrease in the loan interest rate on Monday to reduce financing costs for companies as they struggle to return after unprecedented economic turmoil.

The cut will be the second on the record lending rate this year. Most of the new and existing loans are based on the Loan Prime Rate (LPR).

Friday's bleak economic data boosted expectations that Beijing will step up policy support in the coming months to help keep cash-hungry companies alive until demand recovers.

High expectations for a key lending rate cut came after the People's Bank of China lowered the interest rate on its medium-term lending facility (MLF) loans for financial institutions to the lowest level recorded this week. This standard serves as a guide for LPR.

The Chinese economy shrank by 6.8% in the first quarter of the year, the first contraction since at least 1992 when the government began publishing quarterly records.

Despite some signs of improvement in March as Beijing resumed its economic engines, analysts say recovery will take some time. Analysts said in a separate poll conducted by Reuters that the growth for the whole year may be the weakest in more than 40 years.

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