China launches new benchmark lending rate

Part of stepped-up market reforms.

The People's Bank of China, the central bank, said the “loan prime rate” will guide commercial bankers in setting interest rates when lending to their best customers. Analysts said the move shows that PBOC wants to use the new benchmark as a non-binding and more market-based tool.

PBOC noted the loan prime rate ". . . is aimed at further promoting market-oriented interest rates, improving the benchmark rate systems and guiding the pricing of credit market products.”

The rate reform is part of a broad reform push by China’s new leadership, which is expected to outline the reforms at a key policy meeting in November. China's leaders have promised to steer the economy away from its reliance on debt-fuelled investment to a model driven more by consumption, services and innovation.

Since the new benchmark is based on banks’ lending to their best clients, it will actually serve as the floor for bank loans.