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China cuts key interest rate to boost Covid-hit economy, Asian stocks rise

The reduction in key interest rate in China comes as a wave of defaults ripples through the country's real estate sector. A man wearing a face mask stands on a bridge over an expressway in Beijing (AP)Premium
The reduction in key interest rate in China comes as a wave of defaults ripples through the country's real estate sector. A man wearing a face mask stands on a bridge over an expressway in Beijing (AP)

  • Stocks and US equity futures pushed higher Friday as sentiment received a boost from a move by Chinese banks to lower a key interest rate for long-term loans by a record amount.

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China's central bank today announced it would cut a key interest rate as the country fights to boost its virus-hit economy and Covid-19 restrictions rip across major cities. Prolonged virus lockdowns have constricted supply chains, quelled demand and stalled manufacturing in the last major economy welded to a 'zero-Covid' approach to the pandemic.

"The five-year loan prime rate (LPR) is 4.45 percent," China's central bank said on Friday, lowering the rate -- on which many lenders base their mortgage rates -- from the previous 4.6 percent.

Asian stocks and US equity futures pushed higher today as sentiment received a boost from a move by Chinese banks to lower a key interest rate for long-term loans by a record amount.

Shares rose in Japan, Hong Kong, India and China, shrugging off modest losses on Wall Street Thursday. 

The one-year loan prime rate, which guides how much interest commercial banks charge to corporate borrowers, remained unchanged at 3.7 percent.

The reduction in the mortgage reference rate comes as a wave of defaults ripples through the country's real estate sector, with developers sagging under massive debts and struggling with a slump in demand.

Sunac, one of China's largest developers to default on payments in recent months, said last week that sales in major cities had fallen dramatically in March and April due to the coronavirus wave.

Economic data this week highlighted the stark impact of Covid-19 restrictions and lockdowns in many major Chinese cities. Figures on Monday showed retail sales and factory output last month slumped the most since the start of the pandemic, while unemployment edged back toward its February 2020 peak.

Beijing's unrelenting approach to Covid-19 outbreaks has snarled supply chains and locked down tens of millions of people, hitting major financial, industrial and tourist hubs.

Borders remain closed to most foreigners and a slew of international sports events have been scrapped over pandemic concerns.

China's premier Li Keqiang on Wednesday called for government departments to "step up their sense of urgency" and said "new measures that can be used should be used" to prop up the world's second-largest economy.

China has targeted full-year growth of around 5.5 percent, but data published in April showed that first-quarter growth slowed to 4.8 percent after its economy lost steam in the latter half of last year.

Data released today showed output of Shanghai's industries, located at the heart of manufacturing in the Yangtze River Delta, shrank 61.5% in April from a year earlier, the local statistics bureau said on Friday, slammed by a city-wide COVID lockdown. That compared with a 7.5% drop in March.

Shanghai, where plants of companies including Tesla and Semiconductor Manufacturing International Corp are based, accounts for 30% of China's key auto components manufacturing and 40% of chipmaking capacity.

 

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