Interest Rate Reduction: New LPR mechanism helps ease financing problem

World
Europe

It's a boost for companies in these uncertain economic times. A new Loan Prime Rate mechanism, or LPR, has been announced by China's Central Bank. The mechanism is being viewed as a move to further lower real interest rates for companies as part of broader market reforms. CGTN's Mark Fontes has the details.

It's a market-oriented approach to weathering the changing economic times.

Recent targeted cuts to reserve ratios have freed up about 3 point 4 trillion yuan of basic currency.

But private and small enterprises continue to struggle with financing difficulties.

So, China's Central Bank is making it easier for them to borrow.

LIU GUOQIANG DEPUTY GOVERNOR, PEOPLE'S BANK OF CHINA "The current economic development is pledging to improve the efficiency of market resource allocation, and to promote the integration of loan interest rates. The priority is to cultivate a more market-based interest rate benchmark."

The LPR will be linked to rates set during open market operation, while increasing the coverage period to five years.

ZHOU LIANG, VICE CHAIRMAN CHINA BANKING AND INSURANCE REGULATORY COMMISSION "The implementation of the new LPR better reflects the true level of the loan interest rate, improves the efficiency of the transmission mechanism of the monetary and credit policy, and accelerates funding liquidity."

The flexible change gives private and small enterprises access to funds at rates that better reflect funding conditions in the banking system.

As for housing loans, authority say real estate will not be used to stimulate the economy in a short term and mortgage interest will not be impacted.

Mark Fontes, CGTN.