China has cut its benchmark lending rate for the second time this year to reduce corporate borrowing costs and ease the impact of the coronavirus crisis on the world’s second-largest economy, according to state-run Xinhua news agency.

The People’s Bank of China lowered the one-year loan prime rate by 20 basis points to stand at 3.85 per cent from 4.05 per cent previously.

The central bank revamped the LPR mechanism in August 2019.

The plan to reform the LPR mechanism last year sought “to better reflect market changes in its latest move to guide borrowing costs lower to support the real economy”, according to Xinhua.

The move is to support the businesses affected by weak domestic demand due to the widespread impact following the coronavirus crisis.

Economics research consultancy Capital Economics said in a statement that the rate cut was on expected lines following the recent variations in the medium-term lending facility announced on Apr.15 when the bank reduced it to 2.95 per cent from 3.15 per cent.

“The PBOC has been easing monetary conditions through a range of other tools recently, too. The latest rate decline should be viewed as yet another sign that authorities have become serious about monetary easing,” economist Martin Rasmussen said in a statement.

“As employment conditions remain weak and external demand held back by lockdowns, we think the People’s Bank will take further steps to prop up activity,” Rasmussen said.

He said the bank needed to maintain the credit flow despite interruptions in economic activities due to the global outbreak of the coronavirus.

In March, several economic indicators from January and February reflected a decline in China as the pandemic paralysed the country.

The disease has left more than 4600 people dead and has infected nearly 83,000 patients since the outbreak.

The impact of the coronavirus crisis on the economy led China to record a 6.8 per cent decline in GDP in the first quarter of the year for the first time in four decades.

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