China unveils reform to help firms borrow more cheaply

[BEIJING] China's central bank said on Saturday it will improve the mechanism used to establish the loan prime rate (LPR) in a move to further lower real interest rates for loans in a market-based way.

China's LPR quotations will be based on rates of open market operations, and the national interbank funding centre will be authorised to publish the rate from Aug 20, the People's Bank of China (PBOC) said in a statement on its website. It added the rate will be published every month on the 20th, effective this month.

Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates, the PBOC said, adding that banks will be barred from setting any hidden floor on lending rates in a coordinated way.

The central bank will incorporate LPR application into its macro-prudential assessment (MPA) to urge banks to use LPR pricing.

The move followed pledges from China's State Council on Friday that the country will rely on market-based reform measures to help lower real interest rates for companies.

REUTERS