China needs banks to quote interest rates linked to market rates – ING
Iris Pang, economist at ING, notes that China has announced that the Loan Prime Rate (LPR) has to be to quoted to customers and the formation of LPR will be priced on a +/- basis point basis from open market operation interest rates.
Key Quotes
“Initially, the open market operation interest rate chosen is the Medium Term Lending rate (MLF). The MLF is currently quoted in 1Y mostly but will add a 5Y quote, so that the LPR curve is more applicable to bank loans.”
“Frankly speaking, we do not think the MLF is a 100% market-based interest rate, but of course more market-based than the 1Y benchmark interest rate, which is a fixed rate announced in the past by the central bank.”
“Still, we expect further liberalisation of the LPR to be quoted based on SHIBOR for short term loans and based on the China sovereign yield for long term loans.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
