China Central Bank Studying Launch of Prime Rate -Report

07/14/2012 | 06:03am US/Eastern

    A Dow Jones Newswires Roundup   

SHANGHAI--China's central bank is studying the possibility of introducing the prime rate, a popular funding benchmark used in many developed economies, after soliciting views from domestic commercial banks, the state-run Economic Observer reported Saturday, without citing sources.

The People's Bank of China consulted the opinions of some commercial lenders in late June and early July, the newspaper said.

A prime rate is an interest rate that commercial banks charge their most creditworthy borrowers, such as large corporations.

The PBOC is researching the mechanism of forming the prime rate in China based on models used in markets such as the U.S., Canada, Japan, Hong Kong and Singapore, the report said.

Some lenders have submitted proposals to the central bank, with the U.S. model emerging as the top recommended choice, it added.

China has ramped up its effort to reform the country's creaking system of government-set interest rates in recent weeks, providing a shot in the arm for an ailing economy and signaling a major shift in the financial system that has supported the country's growth for decades.

Last week, the PBOC lowered interest rates for the second time in less than a month, cutting the one-year yuan lending rate by 0.31 percentage point to 6%, effective Friday, making borrowing more attractive.

To boost the effect, the PBOC--which sets a floor on lending rates and ceiling on deposit rates--also said banks could lend at 70% of the benchmark rate, down from 80% currently, making loans more affordable for borrowers.

Newspaper website: http://www.eeo.com.cn

Write to Shen Hong at hong.shen@dowjones.com

Source: http://www.4-traders.com/news/China-Central-Bank-Studying-Launch-of-Prime-Rate-Report--14413748/

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