If a bank needs some quick cash, it can always borrow it from a bank down the road for that prime lending rate.
Since late April, China's central bank has twice raised benchmark lending rates and bank reserve requirements.
Higher funding costs have pushed up lending rates, but the main way that the Banks' difficulties are affecting the economy is through credit rationing.
First of all, the prime lending rate is the interest rate that Banks charge each other for short term loans.
That is much lower even than China's real benchmark lending rate of 3.6% (only China's deposit rates are lower).
Fact China did not raise lending rates over the weekend could open grains higher tonight.
They can raise money more cheaply than smaller Banks, notably in the financial markets, and can therefore offer keener lending rates.
China's central bank announced Saturday to raise the one-year lending rate to 5.81 percent and one-year deposit rate to 2.75 percent, effective from Sunday.
He sees the risk of a double dip recession increasing, along with widening credit spreads and interbank lending rates.
In a nutshell, when the Federal Reserve drops the prime lending rate, they're encouraging you to spend money.
A rate cut now might not even have been felt: the collapse of Lehman has triggered a mad scramble for cash by Banks, driving the interbank-lending rate as high as 6% in recent days.
Thus, many, many other rates that do affect your life are affected by the prime lending rate.
Since January 2010, the required reserve ratio and benchmark deposit and lending rates have been raised 12 times and four times respectively.
China has raised benchmark lending rates by 100 basis points to 6.31 per cent, but small businesses have seen steeper increases.
The spread between the Treasury bill rate and lending rates can change markedly.
The People's Bank of China announced it would increase one-year rates by 25 basis points from today, raising the deposit rate to 3.25 per cent and the lending rate to 6.31 per cent.
The real rate of interest paid on bank deposits is negative and lending rates are far too low for such a fast-growing economy.
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