The People’s Bank of China is expected to cut its main policy reverse repo rate, along with its Loan Prime Rates (LPRs) today. The rate cut from the Federal Reserve this week is expected ease the way for cuts from the PBOC.
The PBOC has shifted to the 7 day repo rate as being the main signal of policy.
Polling (Reuters) shows 27 of 39 expect one- and five-year LPRs to be reduced today
- 2 expect only a cut to the five year
- 10 expect no change
Currently:
- one-year loan prime rate is 3.35%
- five-year rate is 3.85%
- reverse repo rate is 1.7%
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The PBOC’s Loan Prime Rate (LPR):
- Its an interest rate benchmark used in China, set by the People’s Bank of China each month.
- The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.
- Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
- Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
- The panel consists of both domestic and foreign banks, with different weights assigned to each bank’s contributions based on their size and importance in the Chinese financial system.
- The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.
