THE central bank cut the interest rate on its medium-term lending yesterday as policymakers sought to ease the drag to the businesses from a coronavirus outbreak that has disrupted activity.

The move is expected to pave the way for a reduction in the country’s benchmark loan prime rate (LPR), which will be announced Thursday, to lower borrowing costs for companies hit by the virus epidemic.

The People’s Bank of China (PBOC) said it was lowering the rate on 200 billion yuan (US$28.65 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions by 10 basis points (bps) to 3.15 percent from 3.25 percent previously.

The PBOC attributed the move to keep banking system liquidity “reasonably ample” to counter factors including maturing reverse repos, but it did not address the specific reason for the rate move.

Earlier this month, the PBOC unexpectedly lowered the interest rates on reverse repurchase agreements by 10 basis points as the virus outbreak escalated.

Traders and analysts said cutting the MLF rate following a similar move in the reverse repo rate would help the reduction in rates to feed through to longer-term lending.

The coronavirus outbreak has hit the Chinese economy. “An imminent V-shaped recovery is looking less likely than a few days ago,” Capital Economics said in a note Friday.

Most analysts expect a sharp rebound in the second quarter if the disease can be contained soon, but they warn disruptions could continue to ripple through manufacturing and service sectors for months to come.

“The central bank will shift its focus to support firms’ mid- to long-term financing needs rather than short-term stabilization,” said Yan Se, chief economist at Founder Securities in Beijing.(SD-Agencies)