LPR quotation released, 1-year and 5-year interest rates remain unchanged
Economic Information Daily reporter Xiang Jiaying
The first loan prime rate (LPR) in 2024 was released on January 22, with the People’s Bank of China authorizing the National Interbank Funding Center to announce that the 1-year LPR was 3.45%, and the 5-year and above LPR was 4.2%. Both quotes remained unchanged from before.
The LPR interest rate is generally formed by the MLF interest rate and bank points. With the MLF interest rate remaining stable in January, the unchanged LPR is in line with expectations. The central bank renewed MLF by an excess of 995 billion yuan in January, with the interest rate also remaining unchanged at 2.5%.
Wen Bin, chief economist of China Minsheng Bank, expressed that under considerations of various factors such as overall improving fundamentals, increased fiscal policy, stabilizing bank interest margins, stabilizing exchange rate operations, and preventing idling of funds, MLF will continue to “increase in volume” at the beginning of the year. This “price parity” implementation greatly reduces the probability of LPR quotation reduction this month.
In addition to the reasons for the stable MLF operating interest rate in January, Wang Qing, chief macro analyst of Oriental Jincheng, stated that despite the central bank injecting liquidity into the market through large-scale renewal of MLF and other factors, market interest rates such as interbank certificate of deposit interest rates and DR007 have declined. However, there is downward pressure on bank net interest margins, reducing the motivation of quoting banks to lower LPR quotation points.
Experts predict that subsequent RRR cuts and interest rate cuts are still possible.
Wen Bin pointed out, “The necessity and urgency of lowering the current policy interest rate is not high. However, considering the central bank’s stance, policy environment, and actual demand, interest rate cuts may still be possible from March to April, guiding the LPR to moderately decline, thereby promoting the stabilization but decline of financing costs, further activating demand for credit for production and consumption, and stabilizing economic operations.”
On January 8, the People’s Bank of China stated that it “will strengthen counter-cyclical and inter-cyclical adjustments, focusing on three aspects: total volume, structure, and price, to create a good monetary and financial environment for high-quality economic development.” The 2024 People’s Bank of China work conference also proposed to “continue to deepen the market-oriented reform of interest rates and promote the stabilization and decline of comprehensive social financing costs.”
In this regard, Wen Bin expects that total volume, structure, and price-based tools will continue to work together to make wise decisions and improve efficiency. He also mentioned that if relevant economic indicators continue to weaken after credit and fiscal efforts are made in the first quarter, the probability of interest rate cuts and reserve requirement ratio cuts will increase.
Furthermore, Wang Qing suggested that due to the low price level, the current actual financing cost of the real economy is rising. With an eye on boosting total macroeconomic demand, the LPR quotation in the first half of 2024 is likely to follow the MLF interest rate cut. However, he stated that it is unlikely that the LPR quotations for 5 years and above will be significantly reduced in 2024.