Chinese Central Bank Calls for Reduction in Real Cost of Lending, Hails Greater Use of LPR

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The People’s Bank of China (PBOC) has called to driving further reductions to interest rates for loans in order to drive financial inclusion and help support the Chinese economy during the COVID-19 pandemic.

The “2020 First Quarter Chinese Monetary Policy Execution Report” (2020年第一季度中国货币政策执行报告) released by PBOC on the weekend calls for “driving declines in the real interest rates for loans, and supporting enterprises to resume work and production.”

The Report also calls for “further continuing the deepening of reforms to the loan prime rate (LPR), clearing out transmission channels from market rates to loan rates.”

PBOC said that LPR reforms had achieved “major results,” with the Chinese central bank making further use of the mechanism since the start of 2020.

The one-year and five-year LPR’s for March were 4.05% and 4.7% respectively, while by April they were 3.85% and 4.65% respectively, for declines of 30 and 15 basis points compared to the December reading.

According to PBOC the guidance role of LPR is of benefit to further reducing the real interest rates for loans.

The loan prime rate (LPR) (贷款市场报价利率) in China is the lend­ing rate pro­vided by com­mer­cial banks to their high­est qual­ity cus­tomers, and serves as the bench­mark for rates pro­vided for other loans.

In Au­gust PBOC adopted mea­sures to in­crease the in­flu­ence of the LPR as part of broader mar­ket-based re­forms of Chi­na’s in­ter­est rate regime.

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