The PBOC announced additional updates to the Loan Prime Rate (LPR) framework over the weekend.
Goldman Sachs believes the new LPR framework is another loosening measure but in a targeted way, which can help lower funding costs given the linkage between the MLF (Medium-term Lending Facility), the policy rate, and the LPR, but in a more market-based manner amid the loosening cycle.
But the research house does not think that there be deposit rate liberalization in the short term. It is because freeing up deposit rate competition could meaningfully erode bank profitability, reducing their capacity to support credit growth and hence an economic recovery.
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