1-year, 5-year LPR ushered in a double decline Expert: Boost the financing demand of the real economy

China's network finance and economics on January 20 (reporter Wang Jinrui) today, the central bank authorized the national interbank lending center to announce that the loan market quotation rate (LPR) on January 20, 2022 is: 1-year LPR is 3.7%, down 10 basis points from the previous month; the LPR above 5 years is 4.6%, down 5 basis points from the previous month. Among them, the 1-year LPR has been lowered for two consecutive months, and the LPR above 5 years has ended the 20-month continuous "standing still".

Industry experts said that the LPR quotation rate was lowered, mainly because the central bank lowered the MLF policy interest rate (LPR quotation interest rate = MLF interest rate + plus point), guiding financial institutions to lower the LPR loan interest rate quotation benchmark, effectively reducing the credit cost of the real economy, and boosting the financing demand of the real economy.

LPR for 1-year and 5-year or more have been lowered

On January 20, 2022, the central bank authorized the National Interbank Lending Center to announce that the loan market quotation rate (LPR) for January 20, 2022 is: 3.7% for 1-year LPR and 4.6% for 5-year LPR. Among them, the 1-year period has been lowered for two consecutive months, this time by 10 basis points, the last time it was lowered by 5 basis points; the LPR above 5 years has been lowered by 5 basis points this time, and it has been "stationary" for 20 consecutive months.

Prior to this, on January 17, 2022, in order to maintain the reasonable and sufficient liquidity of the banking system, the central bank launched a 700 billion yuan medium-term lending facility (MLF) operation and a 100 billion yuan open market reverse repurchase operation. Winning rates for both the Medium-Term Lending Facility (MLF) operation and the open market reverse repurchase operation both fell by 10 basis points, at 2.85% and 2.10%, respectively.

On January 18, 2022, Liu Guoqiang, deputy governor of the central bank, said at the press conference of the State Council New Office that LPR is formed by the quotation bank based on the actual loan interest rate of the highest quality customers, and the cost of funds, market supply and demand, risk premium and other factors will affect the LPR quotation, as well as the open market operation interest rate, the medium-term lending facility interest rate, and the deposit interest rate supervision, which will also have an impact on the cost of funds.

Sun Guofeng, director of the Monetary Policy Department of the Central Bank, said at the press conference of the State Council New Office that since the beginning of this year, the central bank has strengthened cross-cycle adjustment, increased liquidity investment, promoted the 1-year medium-term lending facility and the 7-day open market operation interest rate on January 17, and the interest rate of the money market and the bond market has also declined accordingly. Effectively promote the reduction of comprehensive financing costs of enterprises.

Wen Bin, chief researcher of Minsheng Bank, said that in August 2019, the central bank reformed and improved the LPR formation mechanism, and the new LPR quotation method was composed of the form of "policy interest rate (MLF) + spread", so the pressure drop of MLF interest rate and spread will lead to the downward trend of LPR interest rate. Historically, the MLF interest rate as a policy interest rate, its downward adjustment has a significant linkage effect on the decline of LPR interest rates.

In Wen Bin's view, on December 20, 2021, the 1-year LPR interest rate was reduced by 5BP, the 1-year LPR interest rate was lowered by 10BP, and the cumulative reduction of 15BP was increased twice in a row, and the counter-cyclical regulation and control of monetary policy increased, reflecting the pre-emptive force of macro policies, helping to stabilize market expectations, enhance the confidence of market players, and encourage enterprises to increase medium- and long-term investment, which will have a positive effect on the current expansion of domestic demand, stable external demand and the smooth operation of the real estate market.

Dong Ximiao, chief researcher of Zhonglian Finance and part-time researcher of the Institute of Finance of Fudan University, said in an interview with the financial reporter of China Net that the asymmetric decline in LPR this month is basically in line with expectations. First, the decline in the MLF winning interest rate has pushed the LPR down. LPR consists of two parts: the open market operating rate (mainly MLF) and the plus point, which is affected by a variety of factors. In general, the LPR is more likely to decrease after the MLF falls. Second, the reduction of the cost of funds of banks has promoted banks to reduce the number of points. Since 2021, the central bank has implemented a comprehensive reduction in the RRR twice, increased the supervision of deposit interest rates, optimized the self-discipline upper limit of deposit interest rates, effectively reduced the cost of funds for banks, and enabled banks to have room to reduce additional points.

The impact on existing personal housing loans is relatively limited

Notably, the LPR above the 5-year period was 4.6%, down 5 basis points from the previous month, after 20 consecutive months of unadjusted. So, how will the LPR cut for more than 5 years affect mortgage interest rates?

Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, said that the 5-year LPR quotation rate was cut by 5 basis points, which is good for the demand for just-needed and improved housing, but it does not mean that the real estate policy has shifted.

Zhou Maohua further pointed out that the 5-year LPR quotation interest rate was reduced by 5 basis points, which is less than the 10 basis points of the MLF reduction, on the one hand, commercial banks consider based on income considerations; on the other hand, as the quotation benchmark interest rate is also released to a certain extent, domestic real estate is the bottom rather than the stimulus. At the same time, the policy cannot damage the normal and reasonable financing and housing demand, meet the demand for just-needed and improved housing, and at the same time, all localities should accelerate the construction of a long-term mechanism for real estate development according to local conditions to meet multi-level housing needs.

Dong Ximiao analyzed that the decline in LPR with a maturity of more than 5 years further promotes the downward trend of long-term loan interest rates, reduces the cost of long-term loan projects, and helps to stimulate market players to make long-term investment. For housing consumers, the decline in LPR over 5 years will help reduce the incremental personal housing loan interest rate, better meet reasonable housing consumption demand, and then reduce the volatility of the real estate market and maintain a healthy and stable development trend. Since the repricing date of most existing loans is January 1 of each year, the impact of the decline in LPR above 5 years in this month on existing personal housing loans is relatively limited; the LPR of the two terms is still asymmetrically adjusted as in the previous month, and no loose signal is sent to the real estate market, reflecting that the tone of "housing is not speculated" is still unchanged.

Zeng Gang, deputy director of the National Finance and Development Laboratory, said that more than 5 years is still dominated by real estate mortgages, and the reduction of LPR for more than 5 years can also promote the downward trend of real estate mortgage costs in a sense, provide a certain degree of support for reasonable mortgage demand, and also create a better condition for the healthy, stable and sustainable development of the entire real estate industry.

Experts: Policy interest rates and market interest rates may continue to decline

On January 18, 2022, Liu Guoqiang, deputy governor of the central bank, said at the press conference of the state council new office that in 2022, the central bank will implement the spirit of the central economic work conference, adhere to the principle of steady word, steady progress, steady monetary policy flexibility and moderation, increase cross-cycle adjustment, give full play to the dual functions of the total amount and structure of monetary policy tools, be more proactive, be more proactive, pay attention to the front, and guide financial institutions to increase support for the real economy, especially small and micro enterprises, scientific and technological innovation, and green development. Stabilize the macroeconomic market and create a suitable monetary and financial environment for promoting high-quality economic development.

For the follow-up monetary policy outlook, Zhou Maohua said that in the future, it is necessary to guide financial institutions to continue to exert efforts on small and micro enterprises, private enterprises, manufacturing and green fields, and at the same time, prevent credit funds from being derealified to virtual potential risks, so that the funds that support enterprises can really play a role. The final effect of the follow-up monetary policy is to effectively meet the needs of the real economy, stimulate the vitality of micro subjects, stabilize employment, and promote the recovery of domestic demand; at the same time, guide the industrial structure to an efficient and green transformation.

Wen Bin believes that in view of the fact that the mainland economy is still facing "triple pressure", in the next stage, it is expected that monetary policy will continue to do a good job of combining cross-cycle and counter-cyclical adjustment, give full play to the dual functions of the total amount and structure of monetary policy tools, and increase efforts to support stable growth. On the one hand, in terms of total amount, we will continue to make good use of the combination of monetary policy tools such as statutory reserve requirement ratio, open market operation, MLF, etc., to maintain reasonable and sufficient market liquidity; on the other hand, we will make good use of structural monetary policy as "addition", continue to increase accurate support for small and micro enterprises, scientific and technological innovation, green development and other fields, and promote the stability and decline of comprehensive financing costs.

Dong Ximiao pointed out that in the next step, the mainland's monetary policy should be more proactive, more proactive and enterprising, and pay attention to making efforts in the front. At present, the weighted average reserve requirement ratio of mainland financial institutions is 8.4%, and there is still some room for rRR cuts; policy interest rates and market interest rates are also likely to continue to decline. Of course, it is more important to further dredge the monetary policy transmission mechanism, increase positive incentives for financial institutions, and inject liquidity into the real economy more efficiently and accurately, from "wide currency" to "wide credit".

(Editor-in-Charge: Yi Wei)