PBC launches in­ter­est rate re­form to cut costs

Global Times US Edition - - BIZUPDATE - By Xie Jun Page Ed­i­tor: [email protected]­s.com.cn

The Peo­ple’s Bank of China (PBC), the coun­try’s cen­tral bank, has im­proved a key in­ter­est rate mech­a­nism to re­duce bor­row­ing costs, a move that ex­perts said is in­tended to help en­ter­prises and boost the econ­omy af­ter re­cent fig­ures pointed to grow­ing down­ward pres­sure.

“By per­fect­ing the loan prime rate (LPR) mech­a­nism, loan rates will edge down via mar­ket-ori­ented re­forms,” a rep­re­sen­ta­tive of the PBC said on Satur­day.

Ac­cord­ing to a PBC doc­u­ment pub­lished on its of­fi­cial web­site, the new LPR quo­ta­tions will be based on open mar­ket oper­a­tion rates – mostly the medium-term lend­ing fa­cil­ity (MLF) – and will be pub­lished by the na­tional in­ter­bank fund­ing cen­ter once ev­ery month start­ing Tues­day.

“Start­ing im­me­di­ately, all banks must mostly re­fer to the LPR when set­ting rates on new loans…banks can­not set im­plicit bot­tom lines of the LPR in any form,” read the PBC state­ment.

The PBC also said it would add eight banks, in­clud­ing ur­ban com­mer­cial banks, ru­ral com­mer­cial banks, over­seas banks and pri­vate banks, to the 10 ma­jor do­mes­tic banks that will be al­lowed to sub­mit LPR quo­ta­tions.

Chen Ji, an econ­o­mist at the fi­nan­cial re­search cen­ter of the Bank of Com­mu­ni­ca­tions, told the Global Times that un­der the new LPR mech­a­nism, the cen­tral bank can more ef­fi­ciently chan­nel the in­flu­ence of its mon­e­tary pol­icy to the mar­ket by closely peg­ging the LPR with the MLF.

Ex­perts said pre­vi­ously that the PBC was more in­clined to use open mar­ket oper­a­tion tools like the MLF than ad­just­ing bench­mark rates.

“The mar­ket will be able to un­der­stand the cen­tral bank pol­icy in­cli­na­tion more ex­plic­itly un­der the new LPR mech­a­nism,” Chen said.

But ex­perts at the Bank of Com­mu­ni­ca­tions fi­nan­cial re­search cen­ter also noted that when the MLF is closed linked with the credit mar­ket, the gov­ern­ment might be­come more cau­tious when using open mar­ket op­er­a­tions in the future.

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