The People's Bank of China has been keeping its benchmark lending rate for corporate and household loans (LPR, Loan Prime Rate) steady at the level of 3.85% for almost two years. Thus, the regulator has not changed the interest rate for 18 consecutive months.
At the recent meeting, China’s central bank decided to leave its interest rate unchanged as expected. Notably, at the end of August 2019, the regulator unveiled a key interest rate reform to help steer borrowing costs lower for companies and support the economy. At that time, the main threat to the country's economy was a trade war with the United States. Further, the coronavirus pandemic swept across the world. Since then, the bank has not raised the issue of a rate hike. As part of the reform, China changed the benchmark rate for loans and instructed banks to use the loan prime rate as a mechanism for setting floating lending rates instead of the benchmark bank lending rate.
At present, 18 Chinese banks are engaged in setting the rate. Every month on the 20th, banks are obliged to send their quotes in increments of 0.05% to the National Interbank Funding Center. Further, for calculating LPR, the highest and lowest quotes are excluded, and the arithmetic mean is calculated. Then, the resulting rates are rounded to 0.05%.
