Home » This month, the LPR quotation is likely to be lowered in 2022, and the comprehensive financing cost of enterprises will be kept stable with some declines | Interest Rates | LPR | MLF

This month, the LPR quotation is likely to be lowered in 2022, and the comprehensive financing cost of enterprises will be kept stable with some declines | Interest Rates | LPR | MLF

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Original title: This month, the LPR quotation is likely to be lowered in 2022, and the comprehensive financing cost of enterprises will remain stable with some declines

On January 19, 2022, in order to maintain reasonable and sufficient liquidity in the banking system, the central bank launched a 7-day reverse repurchase operation of 100 billion yuan, the winning rate was 2.1%, and a net investment of 90 billion yuan was realized on that day. It is worth mentioning that the reverse repurchase and MLF interest rates (Medium-Term Lending Facility) were cut by 10 basis points to 2.1% and 2.85%, respectively, on January 17.

Regarding the LPR (loan market quoted interest rate), which has attracted much attention, many experts expect that the reduction of MLF interest rate will lead to a follow-up reduction of LPR. Sun Guofeng, director of the Monetary Policy Department of the Central Bank, said at the press conference of the State Council Information Office that the drop in interest rates for medium-term lending facilities and open market operations reflects the proactive action of monetary policy, which is conducive to boosting market confidence and reducing transmission through LPR. Enterprise loan interest rate, promote the decline of bond interest rate, promote the stable and moderate decline of the comprehensive financing cost of enterprises, help to stimulate the financing demand of market players, enhance the stability of the growth of total credit, support the issuance of government bonds and local bonds, stabilize the economic market, and maintain internal balance and external equilibrium.

With the current triple pressure on the economy, how will monetary policy work in 2022?

The policy interest rate is cut by 10BP, and the LPR quotation is likely to be lowered simultaneously

In August 2019, in order to deepen the market-oriented reform of interest rates, improve the efficiency of interest rate transmission, and promote the reduction of financing costs for the real economy, the People’s Bank of China decided to reform and improve the loan market quotation rate (LPR) formation mechanism. According to the LPR quotation mechanism, 18 quotation banks are formed on the basis of the open market operation interest rate (mainly referring to the MLF interest rate of the Medium-Term Lending Facility) on the 20th of each month (extended in case of holidays) according to the loan interest rate implemented for the highest quality customers.

At present, the MLF term is mainly 1 year, which reflects the average marginal capital cost of the banking system to integrate the medium-term base currency into the central bank. The increase rate mainly depends on the bank’s own capital cost, market supply and demand, and risk premium. Wang Qing, chief macro analyst of Dongfang Jincheng, said that in my country’s current interest rate system, LPR quotations belong to the market interest rate category, but because of its significant impact on the financing costs of market entities, especially bank loan costs, it has a strong policy. The significance of the signal is widely concerned by the market.

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In December 2021, the one-year LPR quotation was lowered after a lapse of 20 months, from 3.85% to 3.8%. At that time, Political Commissar Lu, Chief Economist of Industrial Bank, said, “Since 2021, the People’s Bank of China has intensified its cross-cycle adjustment, kept the liquidity of the banking system reasonably sufficient, and effectively reduced the cost of funds for banks, which has driven the downward trend of the one-year LPR. .” He also predicted that there is still room for further reduction of LPR in the future.

On January 17, both reverse repo and MLF rates were cut by 10 basis points. Among them, the 1-year medium-term lending facility winning rate fell from 2.95% to 2.85%, and the 7-day open market reverse repurchase operation winning rate fell from 2.20% to 2.10%. Affected by this, interest rates in the money market and bond market also fell accordingly. Sun Guofeng pointed out that the LPR quotation bank comprehensively considers its own capital cost, risk premium, market supply and demand and other factors when quoting. LPR will fully reflect the changes in market interest rates in a timely manner, guide the decline of corporate loan interest rates, and effectively reduce the comprehensive financing cost of enterprises.

In the opinion of Tang Jianwei, chief researcher of the Bank of Communications Financial Research Center, the reduction of MLF interest rates will lead to loose adjustment on the credit side. He further pointed out that due to the small reduction in the LPR quotation in December 2021 and an asymmetric reduction, the one-year period was reduced by 5BP, and the five-year period was unchanged. The MLF operation interest rate reduction rate increased to 10BP this time, which will lead to a high probability to guide the simultaneous reduction of LPR quotations this month. Among them, the one-year LPR may be reduced by 5-10BP, and the five-year LPR may be simultaneously reduced by 10BP.

Liang Si, a researcher at the Bank of China Research Institute, said that the reduction in policy tool interest rates will help ease the pressure on financial institutions’ debt to further reduce corporate financing costs. my country has gradually established an interest rate system of policy interest rate → market benchmark interest rate → market interest rate transmission. As the front end of the interest rate transmission system, policy interest rate directly affects the cost of obtaining liquidity for commercial banks, and then affects the market benchmark interest rate (LPR) and market interest rates. (business lending rates).

She analyzed that the policy tool interest rate cut by 10 BP this time means that it will directly reduce the burden on commercial banks from the policy level, which will help reduce the cost of bank liabilities. Since the LPR quotation is directly linked to the 1-year MLF interest rate, and LPR is the pricing benchmark for banks to issue loans, after the MLF reduction, the LPR interest rate may continue to fall, which will help further guide commercial banks to reduce loan interest rates. Promote the reduction of comprehensive financing costs of enterprises, help enterprises to operate steadily and accelerate their recovery, and effectively help stabilize growth.

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It is important to note that LPR is a macro variable, not tailored to a specific industry or person. Liu Guoqiang, deputy governor of the People’s Bank of China, introduced that the interest rate pricing of corporate liquidity loans issued by financial institutions generally refers to the one-year LPR, that is, short-term loans generally refer to the one-year LPR. For medium and long-term loans, such as manufacturing medium and long-term loans, fixed asset investment loans and personal housing loans, the interest rate pricing period is relatively long, and the 5-year LPR is referenced. He further pointed out, “Changes in the LPR have an impact on all industries, and are aggregated and inclusive, not targeting a specific industry or person.”

In 2022, the comprehensive financing cost of enterprises will remain stable with some decline

Since 2021, the central bank has taken multiple measures to increase support for the real economy, and promote the stable and moderate financing costs of small, medium and micro enterprises. For example, in July 2021, the RRR will be cut by 0.5 percentage points, releasing 1 trillion yuan of long-term liquidity; in September, a 300 billion yuan small re-loan quota will be added to support local corporate banks to increase loans to small and micro enterprises and individual industrial and commercial households; 12 In March, the RRR was cut again by 0.5 percentage points, releasing about 1.2 trillion yuan of long-term funds; the re-lending rate for agriculture, small and medium-sized enterprises was lowered by 0.25 percentage points, and the 1-year LPR fell by 0.05 percentage points.

The data shows that the corporate loan interest rate for the whole year of 2021 will be 4.61%, a decrease of 0.1 percentage point from 2020 and a decrease of 0.69 percentage point from 2019, which is the lowest level in the more than 40 years of reform and opening up.

At the press conference of the State Council Information Office, Liu Guoqiang suggested that the next step to observe interest rates should be from two angles. One angle is to look at actual loan interest rate changes. The corporate loan interest rate for the whole year of 2021 is 4.61%, the lowest level in the more than 40 years of reform and opening up. Another angle is to look at the factors that affect interest rates. LPR is formed by the quotation bank based on the market-based quotation of the actual loan interest rate for the best quality customers. Factors such as capital cost, market supply and demand, and risk premium will affect the LPR quotation. In addition, open market operation interest rates, medium-term lending facility interest rates, and deposit interest rate supervision will also affect the cost of funds.

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The 2021 Central Economic Work Conference pointed out that my country’s economic development is facing triple pressures of demand contraction, supply shock, and weakening expectations. At the same time, in 2022, the economic work must take the lead and make progress while maintaining stability. All regions and departments must shoulder the responsibility of stabilizing the macro economy. All parties must actively launch policies that are conducive to economic stability, and policy efforts should be appropriately advanced.

Liu Guoqiang said that the current economy is facing triple pressures, and “stability” itself is the biggest “progress”. Before the downward pressure on the economy is fundamentally relieved, progress must serve stability, not introduce policies that are not conducive to stability, and introduce more policies that are conducive to stability, so as to promote stability. The force is reflected in three aspects: sufficient force, precise force, and forward force.

“The prudent monetary policy in 2022 will be flexible and appropriate, increase the intensity of cross-cycle adjustment, give full play to the dual functions of monetary policy tools in terms of total volume and structure, and be more proactive and enterprising, and focus on making efforts to advance.” Liu Guoqiang said that the key One is to keep the comprehensive financing cost of enterprises stable with some decline, improve the market-oriented interest rate formation and transmission mechanism, give full play to the efficiency of the reform of the interest rate quoted in the loan market, stabilize the cost of bank liabilities, promote the stable and moderate decline of the comprehensive financing cost of enterprises, and promote the financial system to the entity. Economic benefit.

In the face of the increasing expectations of the Fed to raise interest rates and shrink its balance sheet, Sun Guofeng said that the monetary policies of major developed economies have begun to adjust recently, and the market also has strong expectations for the Fed to raise interest rates and shrink its balance sheet. my country’s macro economy is large and resilient. Since the response to the epidemic, we have insisted on implementing a normal monetary policy. Instead of flooding, we have done a good job in cross-cycle design, maintaining a reasonable and sufficient liquidity, solid financial support for the real economy, enhanced autonomy and stability of the financial system, and stable RMB exchange rate expectations. , all of which help mitigate and address external risks. In general, policy adjustments in developed economies have limited impact on my country.

(Author: Bian Wanli Editor: Zeng Fang)


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