China cuts 7-day reverse repo rate 2 days before LPR

     For the second time in less than two weeks, China lowered one of its lending rates by 5 basis points, only two days before it publishes the rate on its new benchmark lending rate, the Loan Prime Rate (LPR).
    The People’s Bank of China (PBOC) lowered its 7-day reverse repurchase rate on 180 billion yuan in liquidity to 2.50 percent from 2.55 percent, the first reduction since October 2015.
    This cut follows a similar-sized 5 basis point cut in the longer-term Medium-Term Lending (MFL) to 3.25 percent on Nov. 5.
    In recent years PBOC has been revamping its entire system for setting interest rates and on Aug. 17 it designated LPR as a benchmark lending rate, with the rate linked to MFL.
     As part of that move, it changed the method for calculating LPR and now bases it on prices from 18 banks, including two foreign institutions, instead of 10 banks, with the banks required to link their LPR quotes to MFL.
      LPR will be published by PBOC on the 20th of each month and on Aug. 20 the 1-year LPR was set at 4.25 percent, 10 basis points below the previous benchmark lending rate, and the 5-year LPR at 4.95 percent.
     On Aug. 20 LPR was then set at 4.20 percent, down 5 basis points, while the 5-year LPR was unchanged at 4.85 percent.

    www.CentralBankNews.info