In this regard, the PBC announced this August that banks reporting the Loan Prime Rate (LPR), which is the reference rate for interest on bank lending, should determine their lending rates by referring to the rate of money market operations conducted by the PBC. The PBC also stated that all financial institutions should determine interest rates on new loans based on the LPR.
The announcement is expected to make banks' lending rates change more flexibly than in the past, and it could lead to further utilization of interest rate instruments. (3) Importance of Developing Financial Markets The third point is that it is important to develop financial markets so as to raise the effectiveness of monetary policy using interest rate instruments.