China slashes rate, pumps $7b into market to counter virus

China's central bank on Monday cut an interest rate on loans to banks by the largest margin in five years and injected 50 billion yuan ($7 billion) into the financial system to help the world's second-largest economy weather the coronavirus impact.

The People's Bank of China (PBoC) said it launched a 50-billion-yuan reverse repurchase operation on Monday and lowered the seven-day reverse repurchase rate from 2.40 percent to 2.20 percent.

It was the "largest cut since 2015 and takes the 7-day reverse repo rate to its lowest on record", said Julian Evans-Pritchard, senior China economist at Capital Economics. "By offering funds at a lower rate, the PBoC will be able to keep market interbank rates low even as the liquidity from the RRR (reserve requirement ratio) cuts is absorbed by the banking system," he said, referring to an earlier lowering of the amount of cash lenders must keep in reserve.

The deadly pathogen has claimed almost 40,000 lives worldwide, hitting businesses and consumers, and its global spread has dampened hope of a quick recovery in export-dependent China, where the pandemic first erupted in December. The latest move comes as governments and central banks around the world ease monetary policy and unveil titanic stimulus measures worth around $5 trillion to counter the economic impact of the pandemic, which forecasters warn will cause a deep recession.

The Communist Party's decision-making politburo also called last Friday for stronger counter-cyclical policy measures and a step-up in stimulus. The politburo said where appropriate, the fiscal deficit ratio should be raised, special treasury bonds should be issued, and that there should be an increased quota of local government special bond issuance, China's official Xinhua News Agency reported.

Effective loan rates should also be guided down, "maintaining reasonable and sufficient liquidity", officials added.

Monday's move appears to have had little impact on market sentiment, with Shanghai's key stock index about one percent lower in the afternoon.

As COVID-19 ravages the global economy, analysts have cut growth forecasts for China, which was the first to see the effects from containment measures aimed at halting its spread. S&P Global Ratings said its revised economic growth estimate for China in 2020 is now almost half its preoutbreak growth assumption of 5.7 percent. ANZ Research economists Xing Zhaopeng and Raymond Yeung said in a note that the PBoC's rate cut "is intended to lower Chinese corporates' funding costs".

They expect it will be followed by cuts in the medium term lending facility rates and loan prime rate. Markets resume selloff: Asian markets fell following a steep drop on Wall Street as the jubilation from last week's enormous US stimulus package faded and investors returned their attention to the soaring infection and death rate of the pandemic. Equities have been hammered as the virus spreads and the global economy heads for recession, but they bounced back for a few days last week as governments worldwide unleashed unprecedented rescue measures.

Returning Aussies in quarantine: Thousands of Australians returning from overseas were holed up in hotels for a mandatory 14-day quarantine as the country stepped up measures to slow the spread of the virus.

Some returning travellers have complained about conditions in the five-star hotels, reportedly writing in a private Facebook group that their food deliveries had been rejected and they had received requested medication.

The government also announced it would spend Aus$130 billion ($80 billion) to supplement workers' wages over the next six months.

China slashes rates, pumps $7 bn into market: China's central bank cut an interest rate on loans to banks by the largest margin in five years and injected 50 billion yuan ($7 billion) into the financial system to help the world's second-largest economy weather the impact of the pandemic.

The People's Bank of China (PBoC) said it launched a 50-billion-yuan reverse repurchase operation and lowered the seven-day reverse repurchase rate.

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