China to Deepen Loan Prime Lending Rate Reforms

China Central Bank

In a report published on Friday, Vice central bank governor Liu Guoqiang said China would deepen its prime loan rate (LPR) reforms. Moreover, it will gradually make deposit rates more market-driven, he said. 

In China Finance, a publication run by the People’s Bank of China (PBOC), Liu wrote that the country would improve market-based interest rate formation and transmission mechanism. It will also improve its interest rate corridor mechanism.

Liu said the PBOC would improve its policy interest rate regime with the seven-day reverse repo rate in open market operations as the short-term policy rate and the medium-term lending facility (MLF) interest rate as the medium-term policy rate.

The central bank will also improve its interest rate corridor mechanism, he said. He said it would guide market interest rates to fluctuate around the central bank’s policy interest rate.

18 banks set the LPR every month as they submit a monthly quotation by adding a premium over the MLF rate. For 17 months, the PBOC has kept the benchmark lending rate unchanged.

Speculation, however, is growing that it may cut one of its key rates soon to support slowing economic growth.

In August, the weighted average corporate lending rate was at a record low of 4.62%. That was 0.7 percentage points down from July 2019 before the LPR reform. Moreover, Liu said the decline was greater than the fall in the one-year LPR during the same period.

The central bank, he said, will improve LPR reforms, improve the quality of quotations from banks, and publish the historical quotation data in a timely way.

 

Almost 20% of Households Believe Home Prices will Rise 

 

In China, 19.9% of households believe the prices of homes will rise in the fourth quarter of the year. This was a statement from the central bank in a survey report on Friday.

The survey said 19.9% of households believed home prices would rise in the fourth quarter of the year. Moreover, 12.7% of households expected them to decline in Q4.

A separate survey showed that among bankers, 82.5% believed monetary policy is appropriate in Q3.

Also, in August, China’s new home prices rose at their slowest pace in months. Authorities stepped up efforts to rein in a red-hot property market. Cooling measures were anticipated to limit home price growth going forward.

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