China will deepen the reform of the loan prime lending rate

Reuters File Photo: May 31, 2017 This image shows a Chinese Yuan note.

BEIJING (Reuters) – China will deepen its loan prime rate (LPR) reform and gradually drive deposit rates to more markets, Vice Central Bank Governor Liu Guoqiang said in a statement on Friday.

Liu writes in China Finance, a publication run by the People’s Bank of China (PBOC), that it will improve market-based interest rate structure and circulation and improve its interest rate corridor process.

The PBOC will improve its policy interest rate system with a seven-day reverse repo rate as a short-term policy rate on open market operations and a medium-term nnding facility (MLF) interest rate as a medium-term policy rate. .

Liu said the central bank would improve its interest rate corridor process and the central bank’s policy would dictate market interest rates for fluctuations above interest rates.

The LPR fixes 18 banks monthly, who submit monthly quotes by adding a premium on the MLF rate. The PBOC has kept the benchmark rate unchanged for 17 months, but speculation is growing that it could soon cut one of its key rates to slow economic growth.

The weighted average corporate nding rate since July 2019 prior to the LPR reform was a record low of 4.62%, down 0.7 percentage points from July 2019 and more than a one-year decline in LPR over the same period. .

Liu said the central bank would improve LPR reform, improve the quality of quotations from banks and release timely historical quotations in a timely manner.

In August 2019, PBOC redesigned the benchmark nnding rate process to replace the previous benchmark banking rate using market-driven LPR.

In June, Chinese banks reformed the method of calculating deposit rates, allowing banks to set a ceiling on the deposit rate by adding basis points to the benchmark rate, a change from the previous practice of multiplying the benchmark rate.

Liu added that long-term deposit rates have declined significantly since the reforms, and deposits with national banks and local banks have remained largely stable.

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