Asian markets rebound strongly today as positive response to China’s latest interest rate reform that lowers funding costs for firms. The PBoC said over the weekend that it will improve the mechanism used to establish the loan prime rate (LPR) from this month . The central bank also pledged to “deepen market-based interest rate reform, improve the efficiency of interest rate transmission, and lower financing costs of the real economy,”

The new LPR quotations will be based on rates of open market operations, and the national interbank funding center will publish the rate every month on the 20th, starting August. Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates.

PBoC expects the new LPR is more market-oriented. It is, thus, difficult for banks to coordinate the implicit lower limit of the loan interest rate. Breaking the implicit lower limit can cause the loan interest rate to decline

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At the time of writing, Nikkei is up 0.68%. China Shanghai SSE is up 0.44%. Singapore Strait Times is up 0.45%. Hong Kong HSI gapped up at open and is currently up around 1.5%. HSI had previous drew support from 2018 low at 24540.63. More consolidation would be seen above 24899.93 low for the near term.

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