(Yicai Global) Feb. 27 -- China's central bank will continue to push ahead with its loan prime rate reform and guide overall market and lending rates lower, according to its deputy governor.

The People's Bank of China will continue to make good use of the special re-loan policy to favor small and medium-sized banks, Liu Guoqiang told reporters today. To ensure long-term liquidity, it will use monetary policy tools, including open market operations, standing borrowing facilities, and medium-term borrowing facilities, and implement dynamic assessment of inclusive financial targeted reduction.

The PBOC will also bring out new policies and measures to support businesses in their return to work amid the novel coronavirus epidemic. It will boost refinancing and rediscount quotas, guide banks to set preferential loan rates for small- and mid-sized firms so that they can resume work, and raise credit support for small and micro businesses. It will also encourage banks to supplement their capital in a variety of ways and explore innovative tools to replenish capital.

"We're giving banks a lot of low-cost funds now and we can say that small- and medium-sized banks' liquidity problems and costs have been greatly alleviated," Liu said. "But banks have a constraint in lending, and that is their capital.

"Therefore, we need to provide policy support for small and medium-sized banks' equity, improve the banks' credit capacity, and further promote the development of the real economy."

China cut its one-year and five-year loan prime rates by 10 basis points and 5 basis points to 4.05 percent and 4.75 percent, respectively, on Feb. 20. This was the seventh LPR quotation since its reform last August. It was also the third downward shift of the one-year rate and the second cut to the five-year one.

The Shanghai Composite Index rose over 1.8 percent on Feb. 20 when the central bank lowered the LPR.

Editor: Peter Thomas