China joins India and Indonesia in Asian ‘pump priming’

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TOKYO — China trimmed a key bank lending rate on Friday, in the latest move by an Asian government to combat flagging growth and the economic drag of the U.S.-China trade war.

Beijing trimmed its new Loan Prime rate, the reference point against which banks now price loans, to 4.2% for one-year loans, versus 4.25% for August, and left the five-year lending rate at 4.85%. Chinese stocks edged ahead only slightly after the move.

Although the size of the cut disappointed some investors who had hoped for more given new data this week that showed China’s economy continued to slow, the move is just the latest in the region by Asian authorities seeking to ease monetary conditions and pump prime their economies.

Indonesia’s central bank cut its benchmark seven-day reverse repo rate on Thursday by 25 basis points to 5.25%, its third straight cut. Meanwhile, the Philippine central bank is widely expected to cut rates when it meets this coming Thursday, after it cut rates by 25 basis points to 4.25% in August.

China’s economy, the second biggest in the world, grew in the second quarter at its slowest rate in almost three decades. Rising corporate defaults, U.S. tariffs on billions of dollars of Chinese exports and sluggish global growth, also saw industrial production fall to its slowest rate since 2009.

The People’s Bank of China appears to be taking a measured approach,” Julian Evans-Pritchard, senior Chinese economist at Capital Economics, wrote in a note to clients. “However, with economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pickup in credit growth, we think the PBOC will need to start engineering larger declines in the LPR before long.”

As well as monetary policy, some countries are also turning to fiscal expansion to boost growth. India on Friday slashed its corporate tax rate for domestic companies to 25% from 30%. It also provided tax concessions for fresh investment.

Shortly after finance minister Nirmala Sitharaman announced the measure, India’s benchmark S&P Sensex stock index jumped over 4%t — its biggest rise in over a decade, according to the Financial Times. India’s economy has slowed for five consecutive quarters to a six-year low of 5%.

South Korea, which is embroiled in a trade spat with Japan, has also opened the spending taps, laying out a state budget for next year that will expand budget spending by almost 10% in 2020 to 514 trillion won ($424 billion).

Japan is the only major Asian economy to have sat on its hands this week, after the Bank of Japan kept its ultra-easy monetary policy unchanged on Thursday. However, Governor Haruhiko Kuroda said he was “more positive” about the idea of additional monetary easing given rising risks to the global economy.

The U.S. Federal Reserve this week, and European Central Bank last week, also eased monetary policy in response to growing signs of global economic weakness.

2019-09-20 09:02:00

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