The central bank has launched a loan prime rate reference for the credit market, laying the ground for further interest rate liberalization, according to a statement on the People’s Bank of China’s (PBoC) website Friday.
The new mechanism refines the benchmark rate system and reflects the rate that commercial banks usually offer their top customers, it said. Lenders can make loans to others at a discount or premium of the prime rate.
The central bank will initially release the prime rate for a one-year loan on a daily basis on the website announcing the Shanghai Interbank Offered Rate (Shibor). The rate will be a weighted average of the offered rates from nine mainland banks, excluding the highest and lowest figures.
The prime rate mechanism is an important part of establishing a market-driven interest rate and will encourage market players to use Shibor, the PBoC said. The central bank will continue to announce the benchmark lending rates.
Financial institutions are allowed to set their own rates on loans according to commercial principles, the PBoC announced on July 19. The removal of the minimum lending rates, previously set at 0.7 times the benchmark lending rates, took effect on July 20. It marked the biggest move to liberalize the country’s interest rates since the PBoC launched two similar moves in June and July last year.
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