On Saturday, August 17, the People’s Bank of China (PBOC) announced a plan to improve the country's loan prime rate (LPR) mechanism, aiming to support the economy amid the impact from the trade tensions with the US. China's LPR quotations will be based on open market rates and will be published every month on the 20th, starting from August. “By reforming and improving the formation mechanism of the LPR, we will be able to use market-based reform methods to help lower real lending rates,” the PBOC stated.
According to the reform, banks must set interest rates for new loans based on the LPR. Moreover, the list of banks that will be allowed to submit LPR quotations will be increased from 10 to 18.
The PBOC launched the LPR in 2013. The one-year rate is at 4.31 percent at the moment, but it has not been reflected real market dynamics. After the reform comes on steam, the one-year rate will be set at below four percent, analysts believe.
Cheaper loans will boost overall business activity and support major industries in the country, such as construction, and so real estate sales will improve.
