File Photo: A worker counts Chinese currency renminbi banknotes at a bank in Tancheng County of Linyi City, east China's Shandong Province, April 11, 2013. Photo:Xinhua

China's central bank is expected to lower the benchmark interest rates by 25 basis points in March, as the US Federal Reserve's 50-basis-point rate reduction on Tuesday provides more maneuvering room for China to make monetary policy changes and helping the country's coronavirus-hit businesses.

The People's Bank of China (PBC) recently lowered its reverse repo rate and medium-term lending facility to facilitate bank loans, but the Fed's latest decision to drastically cut its interest rate may push the PBC to directly cut the domestic interest rate, hedging the economic damage brought about by the coronavirus outbreak, said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co.

However, given the currently low benchmark interest rate in China, the PBC is more likely to lower it by 25 basis points in March, with one or two more cuts expected later in 2020, Yang told the Global Times on Wednesday.

Low interest rates across the globe have expanded the PBC's room to take immediate action, which looks increasingly likely as Chinese currency, the yuan, has notched marked gains against the US dollar, said Liu Feng, chief economist at China Galaxy Securities.

Immediately following the US Fed's rash announcement on Tuesday, the offshore yuan rose more than 300 basis points to 6.94 against the greenback.

Liu Feng predicted the Chinese central bank will continue to push the market interest rate lower in a bid to reduce corporations' financing costs amid the coronavirus epidemic.

The new virus has now spread to more than 70 countries and regions, with over 10,000 infections reported outside China, including in Asia, Europe and North America.

The Fed's largest interest rate cut since the 2008 financial crisis has verified the serious implications of the virus-incurred crisis for the global economy.

Despite the US Fed's rate cuts, all three major US stock indexes dropped nearly 3 percent at close on Tuesday, and the 10-year US Treasury note yield declined to below 1 percent for the first time since the 2009 US financial crisis.

Ming Ming, chief macro and fixed-income analyst at CITIC Securities, said in a note sent to the Global Times that the Fed's move will benefit China's bond market, as investors bet on a quick recovery of the world's second largest economy from the health crisis.

Global Times