Business · Economy · 3 hrs ago
China to add DR rate as a second benchmark for loan pricing
China’s central bank says loan pricing will use the DR rate as well as the LPR, replacing reliance on a single benchmark.
The LPR is based on monthly rate quotes from 20 representative banks, with the highest and lowest removed before the rest are averaged.
Banks have generally used the LPR to set rates for mortgages, consumer loans and small-business loans, adding or subtracting points.
The DR rate is based on actual overnight borrowing between deposit-taking institutions in China’s interbank market, backed by bonds, and changes daily.
DR can reflect changes in banks’ funding costs more quickly, making it suitable for negotiated loans to medium and large companies.
The LPR is more stable and may remain a better fit for mortgages, personal loans and small-business lending.
The two-benchmark system aims to improve the flow of policy signals to the real economy and give lenders and borrowers pricing that better fits their needs.
China plans to add the DR interest rate as a second benchmark for loan pricing, alongside the existing LPR benchmark.
The central bank says lending rates will move from relying on a single reference rate to using a wider range of pricing benchmarks.
DR is based on completed borrowing transactions between deposit-taking institutions and changes daily.
The article says DR could suit loans to medium-sized and large companies, while LPR may remain more suitable for mortgages, personal loans and small-business loans.
The change is intended to improve the transmission of monetary policy signals to the real economy and make pricing more market-oriented.
- Who
- China’s central bank is introducing the change; banks and borrowers will be affected.
- What
- DR will be added as a second benchmark for loan pricing alongside LPR.
- When
- The central bank announced the planned change recently; no specific effective date is stated.
- Where
- China.
- Why
- To make interest-rate signals pass more smoothly to the real economy and allow pricing to better reflect funding costs and borrower needs.
This story does not have two clearly opposing sides.
Most mortgages, personal consumer loans and small-business loans were priced with reference to LPR.
The central bank announced a move from single-benchmark LPR pricing toward more varied benchmarks, including DR.
- Existing benchmark
- LPR
- New benchmark
- DR interest rate
- LPR calculation
- Quotes from 20 representative banks, with the highest and lowest removed before averaging
- DR frequency
- Changes daily
- Potential use for DR
- Loans to medium-sized and large companies