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New Reference Rates for Loans Edge Down in Line With Market Expectations

By Guo Yingzhe and Peng Qinqin / Nov 20, 2019 01:52 PM / Finance

Photo: VCG

Photo: VCG

New reference rates used by Chinese banks to price loans edged down on Wednesday, in line with market expectations, as the country’s central bank eases monetary policy in an attempt to cut borrowing costs and shore up the slowing domestic economy.

Both the one-year national loan prime rate (LPR) and the five-year-plus national LPR dropped 5 basis points to 4.15% and 4.8%, respectively, according to data from the China National Interbank Funding Center, an entity under the People’s Bank of China (PBOC).

It is the first time the five-year-plus LPR has moved downward since an August reform that replaced the central bank’s benchmark lending rates with the national LPRs as the new reference for pricing loans. The five-year-plus LPR is a reference for loans with the same maturity, such as most mortgages.

Amid rising concerns about downward pressure on China’s economic growth, as shown in October’s worse-than-expected economic data, the PBOC has injected more capital into financial markets and lowered commercial banks’ cost of borrowing from the central bank. Earlier this month it lowered the one-year rate on its medium-term lending facility (MLF). Analysts believe the move is the reason why the LPRs fell on Wednesday, as the MLF rate is the reference for 18 commercial banks to set their own LPRs, which in turn determine the national LPRs.

Read the full story on Caixin Global later today.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

Related: Four Things to Know About How Loans Now Get Priced in China

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