China’s Benchmark Lending Rate Edges Down as Expected
China’s new benchmark lending rates have edged down in line with market expectations, as policymakers work to channel cheaper funds to businesses and households impacted by the coronavirus pandemic.
The one-year national loan prime rate (LPR) has fallen to 3.85% from 4.05%, according to a Monday announcement by the National Interbank Funding Center, an entity under the central bank. It is the biggest monthly drop since national LPRs became the new benchmark rates for bank loans last year. The five-year-plus LPR came down 10 basis points to 4.65% this month.
The reduction is chiefly due to monetary policy adjustments by the People’s Bank of China (PBOC), including reducing interest rates on medium-term lending facility (MLF) loans and cutting banks’ reserve requirement ratios (RRRs), said Wan Zhao, an analyst at China Merchants Bank Co. Ltd.
On Wednesday, the PBOC injected 100 billion yuan ($14.1 billion) into the financial system via one-year MLF loans, cutting the interest rate to 2.95% from 3.15%. The MLF rate is a key reference for the LPRs.
As the pandemic’s disruption of economic activity has pushed many businesses and households into a cash crunch, policymakers have vowed to maintain liquidity. China’s Politburo, the country’s top political decision making body, decided in a Friday meeting to “fully leverage” monetary instruments such as RRR cuts, interest rate reductions and relending in order to maintain sufficient and low-cost liquidity, according to the state-run Xinhua News Agency.
This year, the PBOC has cut RRRs three times. The latest cut was announced on April 3 when the central bank planned to cut the RRRs for small and midsized lenders, releasing about 400 billion yuan of liquidity into the financial system.
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