#forex #china **[China cuts lending rate to help coronavirus-hit economy - Nikkei Asia](https://asia.nikkei.com/Economy/China-cuts-lending-rate-to-help-coronavirus-hit-economy) ## Loan Prime Rate (LPR) - China 1. After a, PBOC decided to cut lending rate, making it first in 3 months. 2. **Why did it PBOC decide to do so?**  1. Cost of credit is key to business activity. By reducing rates, PBOC wants to increase the flow of cheaper money so that small and medium size businesses can re-start their operations after the lockdown. 3. **How did banks react?** 1. The one-year loan prime rate (LPR), a reference rate for lending and set monthly by 18 banks, was cut by 0.1% to 4.05%. LPR is the interest rate that banks charge to their prime (creditworthy) borrowers. Banks add risk premium to LPR and lend to corporates. LPR is revised on the 20th of every month.  2. In August 2019, China’s State Council and PBOC decided to make Loan Prime Rate (LPR) the reference rate for lending by chinese banks. This was done to help PBOC transmist policy rates into lending rates in the economy.  4. **How is LPR fixed?** 1. A group of 18 banks will submit quotes for the rate they offer their most creditworthy customers on one-year loans, expressed as a spread/premium to the one-year rate offered by the PBC through the medium-term lending facility called MLF. For example, 100 basis points above the MLF rate. This premium would depend on cost of credit for banks, the demand for loans and the pricing of credit risk associated with lending to banks’ best customers. 2. MLF rates could be changed without consent from the State Council. The final rate will be the average of these quotes (but not including the highest and lowest quotes).  3. Before August 2019, LPR has been calculated as the average of quotes submitted by a panel of 10 banks, expressed as a “multiple of the equivalent-term official benchmark lending rate”. An example would be 0.9 times the benchmark lending rate. 4. Also, LPR did not move much since 2015 as the official benchmark rate itself remained unadjusted. Changes to benchmark lending rate also required approval by the State Council. LPR thus wasn’t the most preferred reference rate for pricing the loans . 5. **Who publishes the data?** 1. National Interbank Funding Center (NIFC) is the designated publisher of LPR, authorized by the People’s Bank of China (PBOC). ## References 1. ICBC. *Loan Prime Rate Introduction*. [Link](https://www.icbc.com.cn/ICBC/EN/FinancialInformation/RMBDepositLoanRate/RMBLoanPrimeRate/)