MNI POLICY: PBOC RRR Cuts to Impact LPR Over Time: Advisor

By Archie Zhang

     BEIJING (MNI) - The People's Bank of China's latest round of required

reserve ratio cuts earlier this month will take time to impact the benchmark

Loan Prime Rate, said Ma Jun, a member of the central bank's monetary policy

committee, in an interview with Financial News.

     Ma's comments come after the PBOC-authorized National Interbank Funding

Centre on Jan. 20 left 1-year and 5-year LPR quotes unchanged from last month at

4.15% and 4.80%, raising concerns that they failed to reflect the lower RRR and

banks' funding costs, the paper said. 

     According to Ma, the apparent mismatch is due to the rounding effect of the

LPR calculations that move in multiples of 0.05%, as well as individual bank

decisions to lower quoted rates, according to the report carried by the PBOC's

official WeChat account. 

     Some banks likely adjusted their quotes, though not enough to meet the

threshold for overall LPR changes, and the effects will accumulate over time, Ma

said.

     "Analysts should have the patience" and let the market make sufficient

pricing adjustments, he added. 

     The RRR cut, announced Jan. 1 and implemented Jan. 6, is "not small in

policy magnitude," Ma said. The PBOC will continue to reduce the financing costs

to the real economy, prevent leverage ratios from increasing and consider

inflation pressure, Ma said.

     The PBOC reformed the LRP mechanism in Aug. 2019, requiring 18 banks to

each month submit their lowest 1-year and 1-year loan rates. The central bank

then publishes the benchmark on the 20th of each month, serving as a

market-oriented guidance for all banks to price loans.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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