China lowered its new lending reference rate slightly on Tuesday, as expected, a...
SHANGHAI/BEIJING - China lowered its new lending reference rate slightly on Tuesday, as expected, as the country’s central bank kicked off new interest rate reforms designed to lower corporate borrowing costs.
The modest reduction in the lending rate comes after the People’s Bank of China on Saturday designated the LPR the new lending benchmark for new bank loans to households and businesses, replacing the central bank’s existing benchmark one-year lending rate. He also said the PBOC would need to take other steps, including cuts to medium-term liquidity rates, if it wants to continue reducing the LPR to lower funding costs for banks.
Despite economic growth nearing 30-year lows, analysts say the PBOC has been reluctant to cut interest rates system-wide due to fears of a further surge in debt and possible property bubbles. It last cut the one-year lending rate in 2015. Indeed, existing loans including mortgages are still exempt from the new benchmark scheme.Some market participants expect the central bank will cut the interest rate on one-year MLF, which could essentially bring the LPR down further.
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