China’s National Interbank Funding Center announced on Tuesday that the one-year loan prime rate (LPR) came in at 4.25 per cent, the first pricing after the country decided to reform the lending rate mechanism.
The rate was slightly lower than the 4.31 per cent, judging from the previous mechanism, and also lower than the 4.35 per cent central bank benchmark lending rate.
It was Introduced in 2013 and disclosed every trading day, the old LPR functioned as a market-based reference for lenders to set their loan interest rates.
Meanwhile, many banks still set their lending rates based on the central bank’s benchmark rates.
However, to better reflect market changes, the central bank released a plan to improve and reform the LPR mechanism in its latest move to guide borrowing costs lower to support the real economy.
Under the revamped mechanism, the new monthly-released rates were based on rates of the central bank’s open market operations, especially the medium-term lending facility rate.
Banks were required to set rates for new loans using the new LPRs as the benchmark, among the changes, the number of quotation banks was expanded from 10 to 18.
This, it said, involved not only national banks but also urban commercial banks, rural commercial banks, foreign-invested banks and private banks.
According to Liu Guoqiang, vice governor of the People’s Bank of China, the move will push banks to lower lending rates and reduce borrowing costs for small and micro businesses.
According to a research by China International Capital Corporation Ltd, over the years, China has made steady progress in interest rate liberalisation, and the latest move marked a step forward.
“To offer reference for long-term loans, the National Interbank Funding Center priced the above-five-year LPR at 4.85 per cent, slightly lower than the 4.9-per cent central bank benchmark rate.
Guoqiang said in spite the retreat, the real lending rate for housing mortgages would not fall, as the goal of the reform was to channel more funds to the real economy.
He said the central bank would soon release a statement specifying regulations on the lending rate for housing purchases, the new LPRs would be disclosed at 9:30 a.m. on 20th of every month
