BEIJING - China's central bank ordered lenders to adopt a new loan-pricing regime for all credit from next year, marking an end to the previous benchmark and another step toward liberalising the financial system.
The LPR - set at 4.15 per cent for one-year tenor in December - is lower than the benchmark rate at 4.35 per cent. REVAMPED RATE The LPR, revamped to become the benchmark for new loans this year, is based on the interest rate for one-year loans that 18 banks offer their best customers. Banks submit the quoted price each month in the form of a spread over the rate of the PBOC's medium-term loans.
In the new scenario when all borrowing is based on the LPR, the supply of central bank funding or cuts to the rates of medium-term loans will in theory push down the LPR, and reduce the cost of all lending to businesses.