Under the revamped Loan Prime Rate mechanism, China’s PBoC lowered the new one year LPR by -6 basis points to 4.25%, down from 4.31%, today. It’s currently -10 basis points lower than then existing benchmark one-year lending rate. The new five-year LPR was set at 4.85%, below five-year benchmark lending rate of 4.90%.
It’s the first day of operation of the new LPR, kicking off the rate reform to lower corporate borrowing costs. But the tiny reduction would only have marginal impact of economic activity. And PBOC would need to take other steps to boost lending.
PBoC Vice Governor Liu Guoqiang said the country still needs time to observe effects of LPR reform but it will not scrap benchmark lending rate for the time being. He added that there is room for cuts in both reserve requirement ratio and lending rate.
Liu added that there is urgency for interest rate reform due to trade war with the US, industrial transformation, rate cuts from global central banks. But China is not experience deflation for now, and markets rates are at basically reasonable level.
