China's central bank on Friday announced the launch of Loan Prime Rate (LPR), a new benchmark lending rate for commercial banks designed to make interest rates more market-oriented.
The People's Bank of China (PBOC) said in a statement that LPR is based on lending rates reported each working day by nine commercial banks designated by the central bank.
The nine include the country's five state-owned banks and another four Chinese banks -- China Citic Bank, Shanghai Pudong Development Bank, Industrial Bank and China Merchants Bank.
Each working day, those banks are required to report lending rates for their best customers to the central bank, which will then calculate the weighted average after excluding the highest and lowest rates to form the LPR, the central bank said.
In the initial stage, the central bank will only release the one-year LPR to the public on the website of the Shanghai Interbank Offered Rate.
The one-year LPR for Friday stood at 5.71 percent, slightly lower than the current benchmark one-year lending rate of 6 percent, which was unveiled by the PBOC in July 2012.
Previously, the central bank would raise or lower the benchmark deposit and lending rates from time to time based on changing market situations.
The PBOC said in the statement that for smooth transition to the new mechanism, it will continue to announce changes in the benchmark rates for an unspecified period of time.
The one-year LPR will serve as a new benchmark for commercial banks to decide other lending rates, according to the statement.
The LPR mechanism is a significant part of the central bank's move to push for market-oriented interest rate formation.
"The mechanism is conducive to raising the efficiency and transparency in pricing credit products of financial institutions and promoting banks' capability of independent pricing," the statement said.
The central bank added that the new mechanism will make interest rate formation more rational and thus be good for maintaining market order.
Source: Xinhua
