Thread by @ChinaFinance40

THREAD: #China’s central bank #PBoC on Sat. unveiled plan to improve the mechanism which will form the loan prime rate (LPR) to further liberalize the rate of bank loans, marking a significant step forward toward the market-based reform of interest rate. mp.weixin.qq.com/s/IoTSx9MePEnY…

The reform of #LPR is mainly aimed at improving the efficiency of monetary policy transmission mechanism. Under the current FTP(funds transfer pricing) model, easing monetary policy often fail to benefit real economy sector, according to Li Qilin, CF40 Youth Scholar.

The new LPR will have three major changes, 1. Besides the already existing 1-year LPR, #banks will also report 5-year LPR which could provide reference for PBoC to set the price for mid- and long-term #loans.

2. Banks who submit #prices for the calculation of the new LPR will
report by adding basis points to the interest rate of central bank’s open market operations, mainly the 1-year medium-term lending facility, which will allow banks’ loan rate to move in a market-oriented way.

3. The number of banks to report the prices of loans will be increased from 10 to 18 which will include city and rural commercial banks, foreign banks (e.g. #StandardChartered Bank and #Citibank) and private banks.

The necessity of the reform has been echoed by the 2018 Jingshan Report led Huang Yiping, chairman of CF40 Academic Committee, which points out three major problems with China’s financial system.

According to the report, the most distinct feature of China’s financial sisytem over the past 40 years has been “more emphasis on size and less effort on mechanism development,”which has led to much misallocation of financial
resources: cf40.org.cn/uploads/JS2018…