China rate cut fuels rally across Asian share markets
Asian markets rallied Monday after China’s central bank cut interest rates, driving stock indices higher across the region on hopes that Beijing will take a supportive stance on ensuring growth.
The People's Bank of China (PBoC) cut its benchmark interest rate by a quarter point for the second time in three months, to 5.35%, and lowered its one-year benchmark deposit rate by the same amount to 2.5%.
The move kicked-up the Shanghai Composite by 0.8%, Hong Kong’s Hang Seng Index by 0.7% and pushed Japan’s Nikkei 225 up 0.3% to multi-year highs. In Australia, the S&P/ASX 200 rallied 0.8% to 5977, trading at levels not seen since its highest close since February 2008 as the latest move by the PBoC could fuel China’s demand for Australia’s resources.
The latest efforts by the PBoC come ahead of this week’s National People’s Congress annual meeting which aims to combat deflation and spur lending within the system. Expectations for a cut to rates by the PBoC were flagged across most asset classes as calls for looser monetary policies from Beijing have been growing louder over the past few months, despite resistance by some Chinese officials.
Analysts at Danske Bank said that although the Chinese leadership probably does not see the need for aggressive easing, the PBoC still has an easing bias “because recent capital outflows and intervention in the FX market have drained some liquidity in the interbank market".
Indeed, the PBoC also pushed the renminbi lower on Monday, raising the USD/RMB fix by six basis points to 6.1511. The onshore currency, already trading at a 28-month low, fell 0.05% to 6.2725 per dollar. In offshore trading, the renminbi fell 0.12% to 6.2978.
The PBoC moves overshadowed official state-sponsored data which showed China’s manufacturing activity came in at 49.9 in February, up slightly from January's 49.8 reading but still below the 50-point level which signals contraction.
That said, analysts at Danske Bank said the details of the data were slightly positive with new orders improving slightly from 50.2 to 50.4 and export orders also improving marginally from 48.4 to 48.5, although export orders remain subdued.
“Distortions due to the timing of the Chinese New Year public holiday reduce the visibility on January and February data, so we interpret data for these months with caution,” they added.