Central bank plans more rate reforms to cut borrowing costs

The People's Bank of China, the central bank, said on Tuesday that it would continue to use interest rate reforms to further lower the borrowing costs for companies and clarified that despite pressures on the banking sector it would not lower the capital adequacy ratio requirements for lenders.

Liu Guoqiang, vice-governor of the PBOC, said during a news briefing that between August and December, efforts will be made to reduce financing costs for market entities by about 600 billion yuan ($86.73 billion), mainly through lower lending rates and a better interest rate transmission mechanism. The target for the full year is to reduce 1.5 trillion yuan in costs for enterprises, he said.

Central bank officials said that the loan prime rate reform, which started in August 2019, has eliminated the banks' invisible floor of lending rates, which in this case is 90 percent of the one-year bench mark lending rate. The LPR has also helped in the liberalization of deposit rates, as banks have adjusted the lower deposit rates to match the falling lending rates, they said.