MNI China Press Digest Sep 21: LPR Cuts, Interest Reform, Yuan

The following lists highlights from Chinese press reports on Wednesday:

• China’s five-year Loan Prime Rate is expected to be cut to help provide cheaper funding for major infrastructure projects and boost medium- and long-term borrowing by manufacturers and homebuyers, the China Securities Journal reported citing Wang Yunjin, senior researcher at Zhixin Investment Research Institute. He said the one-year LPR, sitting at 3.65%, may see limited downside as it is already lower than some banks’ medium- and long-term deposit rates and their large-denomination certificate of deposit rates. Though LPRs were kept unchanged this week, the one-year and five-year maturity have dropped by 15 and 35 bps respectively this year. This has driven down interest rates on loans.
• The People's Bank of China will continue to promote market-based interest rate reform, strengthen the supervision of deposit interest rates, and improve the formation and transmission mechanism of interest rates, according to an article by the PBOC’s Monetary Policy Department run on its social media account. China’s fixed deposit interest rate of 1% to 2% and the loan interest rate of about 4% to 5%, which is slightly lower than the potential economic growth rate, are viewed as being at a reasonable level that provides room for policy to be changed, the article said.
• China should maintain maximum yuan flexibility and continue to manage cross-border capital flows instead of overly worrying about short term weakness against the U.S. dollar, according to an article posted on the China Finance 40 Forum citing former People's Bank of China advisor Yu Yongding. Yu downplayed the importance of the yuan breaking through 7 against the U.S. dollar. China should seek to stabilise growth through expansionary fiscal and monetary policies given the challenges in the global economy, Yu added.