China to use new benchmark for floating-rate loans to help reduce borrowing costs
- Central bank says loan prime rate, or LPR, will be used from January 1
- It aims to ‘make interest rates more market-driven’, lower cost of financing
China’s central bank will use the loan prime rate, or LPR, as a new benchmark for pricing existing floating-rate loans, in a step that analysts say could help lower borrowing costs and underpin economic growth.
Beijing has unveiled a raft of pro-growth measures this year, including tax cuts, more infrastructure spending, reductions in the amount of cash banks must keep in reserve and lending rates to boost credit.
Floating-rate loans, excluding individual housing loans tied to state provident funds, that had been signed before 2020 would be priced in line with the LPR, the central bank said.
Under the new rate regime unveiled in August, the revamped LPR is linked to the medium-term lending facility (MLF), a key policy rate of China’s central bank.
“The purpose of the step is to make interest rates more market-driven and help lower financing costs,” said Wen Bin, an economist at Minsheng Bank in Beijing.