China to rely on reforms to lower real interest rates, cabinet says

BEIJING (Reuters) - China will rely on market-based reform measures to help lower real interest rates for companies, unveiling some plans to help banks improve loan pricing, state television quoted the cabinet as saying on Friday.

China will reform and improve the loan prime rate (LPR) regime to help banks price their loans, adding five-year and longer tenors to the existing one-year tenor, the cabinet said.

It will allow banks to set rates on loans based on the rates of the central bank’s open market operations, the State Council was quoted as saying after a regular meeting.

The national interbank funding center will calculate and publish a key reference rate for banks, the cabinet said.

The reforms will help “significantly lower real interest rates and resolve difficulties in financing and high financing costs”, it added.

It will ensure the average funding costs for small companies fall by 1 percentage point this year, it said.

The central bank has pledged to gradually unify two interest rate “tracks” - its market-based rates developed in recent years and its benchmark bank deposit and lending rates.

In July, central bank head Yi Gang said China would keep its benchmark deposit rate for a relatively long time, but would phase out its benchmark lending rate in the push to unify the benchmark lending rate and market-based rates.

Reporting by China Monitoring Desk and Kevin Yao; Editing by Clarence Fernandez