BEIJING (Reuters) – China will deepen its preferential lending rate (LPR) reforms and gradually make deposit rates more market-determined, Central Bank Vice Governor Liu Guoqiang said in remarks released Friday.
China will improve the market-based interest rate formation and transmission mechanism and improve its interest rate corridor mechanism, Liu wrote in China Finance, a publication led by the People’s Bank of China (PBOC). .
The PBOC will enhance its policy interest rate regime with the seven-day reverse repurchase rate in open market operations as the short-term policy rate and the medium-term loan facility interest rate ( MLF) as the medium-term policy rate, Liu said. .
The central bank will also improve its interest rate corridor mechanism and guide market interest rates to fluctuate around the central bank’s policy interest rate, Liu said.
The LPR is set monthly by 18 banks, which submit a monthly quote adding a premium over the MLF rate. The PBOC has kept its policy rate unchanged for 17 months, but speculation is mounting that it may soon cut one of its policy rates to reinforce the slowdown in economic growth.
The weighted average rate on business loans was at an all-time high of 4.62% in August, down 0.7 percentage point from July 2019 before the LPR reform, and the drop outpaced the drop in LPR to one year over the same period, Liu said. .
The central bank will improve LPR reforms, improve the quality of bank quotes and release historical quote data in a timely manner, Liu said.
In August 2019, the PBOC overhauled the benchmark lending rate mechanism using the market-based LPR to replace the old benchmark bank lending rate.
In June, China reformed the way banks calculate deposit rates, allowing banks to set caps on deposit rates by adding basis points to the benchmark rate, a change from the previous practice of to multiply the reference rate.
Long-term deposit rates have dropped significantly since the reform, and the amount of deposits held by national and local banks has remained virtually stable, Liu added.
Reporting by Kevin Yao and Beijing Newsroom; Editing by Christopher Cushing and Kenneth Maxwell