China cuts key mortgage reference rate as Covid bites

Prolonged virus lockdowns have constricted supply chains, quelled demand and stalled manufacturing in China

China on Friday announced it would cut a key interest rate in a boost to home buyers and debt-mired developers as the country's economy is slowed by Covid-19 restrictions ripping 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.

Since the rate is "the benchmark for pricing most mortgages, we think the move is aimed at supporting housing demand," Julian Evans-Pritchard, an analyst at Capital Economics, said. 

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

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.

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.

"Monthly economic indicators published recently suggest severe growth pressure," according to Chaoping Zhu, global market strategist at JP Morgan Asset Management.

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.

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.

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