BEIJING/SHANGHAI - China’s announcement of key interest rate reforms over the weekend fueled expectations of an imminent reduction in corporate borrowing costs in the struggling economy, boosting share prices on Monday.
Analysts believe the revamped loan prime rate , which will be debut on Tuesday, will be lower than the current level of 4.31%, but are divided over how much funding costs will come down and how quickly. China and Hong Kong stocks rose on expectations the move will ease corporate financing pressures, but some analysts cautioned the reform may not be equivalent to cuts in bank’s actual lending rates, as banks could still charge higher rates on riskier loans to smaller, private firms.
Australia and New Zealand Banking Group estimates that the reform is equivalent to making a 45 basis point loan rate cut. Societe Generale believes the reform could lead to a more modest 10-25 bps cut in the new benchmark lending rate. Some analysts believe the central bank could cut the one-year interest rate on the MLF in order to guide borrowing costs lower. A batch of one-year MLFs with a value of 149 billion yuan is set to expire next Monday.
Ma said the LPR reform will help it better reflect changes in market rates and help lower corporate funding costs.
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