Market-based interest rates on track

China yesterday published loan rates based on quotes from banks as it takes a further step toward establishing a market-based interest rate system.

Nine banks, including China's five largest state-owned commercial banks, submit the lending rates they charge their best clients on a daily basis, and the country's interbank funding center will calculate and publish a weighted average rate based on the submissions, the People's Bank of China said in a statement.

The one-year rate was 5.71 percent yesterday, compared with the PBOC-set benchmark of 6 percent.

The rate, known as Loan Prime Rate, can be used as a reference for banks to set lending rates and will gradually replace the current benchmark set by the PBOC, the statement said.

The new rate "will promote a smooth transition for the pricing benchmark from being determined by the central bank to being decided by the market," the central bank said.

"It will help lay the institutional foundation for further facilitating the market reform of interest rates," it said.

The prime rate will co-exist with the current policy benchmark lending rate for a "certain period of time," the statement said, without elaborating.

"This is seen as a step toward further interest rate liberalization," ANZ said in a note yesterday.

"We think this is a reasonable level as commercial banks normally offer 10 percent discount off the policy lending rate to the best customers."

Zhou Wenyuan, a chief researcher at Guotai Junan, said the move will create transparency in calculating the rates.

"The move also protects the interest of banks as the rate is quoted by them," Zhou said.

On July 20, China scrapped a lower limit on lending rate in an attempt to create market-oriented interest rates. Banks were previously allowed to lend at not lower than 30 percent below the benchmark rates set by the central bank.