Asian shares opened higher in early trade on Friday as China cut a key lending benchmark to prop up a slowing economy.
China cut its five-year loan prime rate (LPR) by 15 basis points on Friday morning, a sharper cut than had been expected, as authorities seek to cushion an economic slowdown, though it left the one-year LPR unchanged. The five-year rate influences the pricing of mortgages.
Many market participants believe the said move was a response to Premier Li Keqiang’s call to decisively step up policy adjustments and strive to let the economy return to normal quickly.
At the early trading hour, the Chinese blue-chips were 1.1 percent higher in early trade and Hong Kong’s Hang Seng index jumped more than 2 percent, while Australian shares rose 1.3 percent. In Tokyo, the Nikkei stock index gained 1 percent. While, MSCI’s broadest index of Asia-Pacific shares outside Japan quickly built on early gains after the cut and was last up 1.4 percent.
China’s economy is expected to shrink in 2Q from a year earlier, compared with the first quarter’s 4.8% growth. Indicators from credit lending, industrial output and retail sales showed COVID-related stringent measures and mobility restrictions have taken a heavy toll.
Property sector has been a key drag on growth, while property and related sectors such as construction account for more than a quarter of the economy. Hence, the move clearly explains the intention of policymakers to turn around this sector and drum up the economy growth.
According to most analysts, while it certainly will not suffice to reverse growth headwinds in Q2, but the cut constitutes a move in the right direction so markets might be reacting to expectations of stronger easing going forward.
