On April 20, the latest LPR (Loan Quoted Rate) was released. The People’s Bank of China (hereinafter referred to as the “PBOC”) authorized the National Interbank Funding Center to announce that the 1-year LPR is 3.65%, and the 5-year LPR is 4.3%. The quotations of the two varieties have maintained the previous value, so far LPR has been “standing still” for 8 consecutive months.
The LPR remained unchanged this month in line with market expectations. A few days ago, the central bank kept the interest rate unchanged during the MLF (medium-term lending facility) operation, which has largely indicated that the LPR will also remain unchanged that month.
“In addition to the MLF interest rate that is the anchor of LPR pricing, the ‘holding position’, the current recovery of the macro economy and real estate has established, reducing the willingness and motivation of banks that are still facing greater pressure on net interest margins to lower the LPR plus point.” Jones Lang LaSalle Pang Ming, Chief Economist for Greater China, said in an interview with a reporter from Securities Daily.
Wang Qing, chief macro analyst of Oriental Jincheng, told the “Securities Daily” reporter that due to the previous “promotion to reduce the comprehensive financing cost of enterprises and the cost of personal consumption credit” and the continuous reduction of residential mortgage interest rates, the net interest margin of commercial banks will drop to 1.91%, the lowest point in history. At the same time, with the strengthening of economic recovery expectations, the monthly average of benchmark market interest rates such as DR007 and commercial bank (AAA grade) 1-year interbank certificate of deposit yields have risen to near the policy interest rate level recently. Financing costs have risen. These will to a certain extent weaken the motivation of quotation banks to compress LPR quotations and add points.
According to the latest data released by the National Bureau of Statistics, in the first quarter, my country’s GDP grew by 4.5% year-on-year, and the growth rate was 1.6 percentage points higher than that in the fourth quarter of the previous year. According to financial data released by the central bank, my country’s RMB loans increased by 10.6 trillion yuan in the first quarter, an increase of 2.27 trillion yuan year-on-year; the increase in social financing in the first quarter was 14.53 trillion yuan, 2.47 trillion yuan more than the same period last year. In addition, in March, among the 70 large and medium-sized cities, there were 64 and 57 cities where the sales prices of new commercial housing and second-hand housing rose month-on-month, respectively, an increase of 9 and 17 from the previous month.
Wang Qing said that although the LPR was stable in April, it is unlikely that the financing costs of the real economy will rebound sharply in the short term. Driven by the central bank’s consecutive RRR cuts in December last year and March this year, as well as the general cuts in bank deposit rates since the second half of last year, financing costs for the real economy are expected to remain low in the second quarter.
According to Wen Bin, Chief Economist of Minsheng Bank, considering that the economy has been recovering and improving this year, and credit demand has recovered effectively, market players are more willing to raise funds and the real estate market is more active. The need for policy has declined, and the room for interest rate cuts has further narrowed. The central bank may rely more on structural monetary policy tools to achieve “targeted interest rate cuts”, taking into account structural adjustments while reducing costs, and achieving differentiated and precise support.
Wen Bin further stated that in the follow-up, an important factor triggering interest rate cuts is still the sustainability of economic and financing restoration. The continued reduction of LPR, in addition to relying on the reduction of the policy interest rate, the most important thing is to match the improvement of the liability side to ensure that the bank’s own net interest margin remains at a relatively stable level.
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