The LPR has remained unchanged for five consecutive months, what is the future trend? Expert: There is still a possibility of a reduction in the first quarter
On January 22, the People's Bank of China authorized the National Interbank Lending Center to announce that the loan market quotation rate (LPR) on January 22, 2024 is: 1-year LPR is 3.45%, and LPR over 5 years is 4.2%. The LPR of both varieties has remained at this level since August 2023.
Source: People's Bank of China official website
Experts said that keeping the LPR unchanged reflects that the current real lending rate is in a reasonable range as a whole, which will help banks keep interest rate spreads basically stable to a certain extent and enhance the sustainability of fee reductions and concessions to the real economy.
MLF continues to "increase volume and parity in price"
"The MLF winning interest rate has not changed, and it is natural that the LPR will not change. Dong Ximiao, chief researcher of Zhaolian Financial, told a reporter from Nandu Bay Finance Agency.
It is reported that on January 15, the central bank continued the continuation of the "volume increase and price parity" MLF at the beginning of the year, suggesting that the LPR will continue to remain unchanged this month. According to the information on the official website of the central bank, 89 billion yuan of open market reverse repurchase operations and 995 billion yuan of medium-term lending facility (MLF) operations were carried out this month, with winning interest rates of 1.80% and 2.50% respectively, which is the first "parity increase" continuation in 2024. From the perspective of volume, the maturity of MLF in January was 779 billion yuan, so this operation put a net of 216 billion yuan of medium and long-term liquidity into the market.
Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, pointed out that the LPR continued to remain stable in January, in line with market expectations, reflecting that the current real lending rate is in a reasonable range as a whole.
In the view of Shenwan Hongyuan's team, there may be two reasons why the central bank did not cut interest rates in January: first, the policy rate may be lowered after the pressure on the RMB exchange rate to depreciate; second, even compared with the potential economic growth center, the policy rate is currently at a low position, and the need for continuous reduction of the policy rate is not high.
"Although there is still the possibility of a separate LPR cut in January, it is expected that it will be difficult to reverse the economic expectations of the bond market, coupled with the failure of interest rate cut expectations, and the lower limit of the bond market yield of various maturities itself has not been fully opened, even if the impact of the LPR alone cut on the bond market in January is expected to be limited. Shenwan Hongyuan team said.
Dong Ximiao also said that in 2023, the MLF winning interest rate will be reduced twice, with a cumulative decrease of 25 basis points, guiding the market interest rate to decline significantly. At present, both corporate lending rates and consumer credit interest rates are at historic lows. Keeping the LPR unchanged will help banks keep interest margins basically stable to a certain extent and enhance the sustainability of fee reductions and concessions to the real economy.
Wang Qing's team of Oriental Jincheng Macro Research pointed out that the LPR remained unchanged this month, in addition to the main reason that the MLF operating interest rate remained stable, the low downward trend of the bank's net interest margin also made the quotation bank lack the motivation to lower the LPR quotation markup.
There is still a possibility that the LPR will be lowered in the first quarter
Regarding the trend of LPR quotations in the future, Wang Qing's team pointed out that due to the low price level, the current real financing cost of the real economy has risen, and with a view to boosting macroeconomic aggregate demand, LPR quotations in the first half of 2024 may follow up with the MLF interest rate reduction.
The research team of Soochow Securities pointed out that as the domestic economic growth is under pressure and the pressure on commercial banks' interest margins is eased, the room for interest rate cuts will gradually become clear. At the same time, monetary policy easing in 2024 is still the general direction, and the RRR and interest rate cuts are likely to be delayed.
The banking team of Cinda Securities also pointed out that considering the demands of the first quarter of the fiscal is expected to be front-loaded, credit is off to a good start, and the liquidity of the Spring Festival is smooth, as well as the Fed's expectation of interest rate cuts is heating up, and the deposit rate will be lowered several times in 2023 to open up space for interest rate cuts, there is still the possibility of interest rate cuts and RRR cuts in the first quarter, and it is necessary to focus on the implementation effect of the previous policies in the future.
Huatai Securities pointed out that the possibility of a RRR cut in the first quarter is higher, but the landing time is logically more reasonable in March. In terms of interest rate cuts, combined with six factors such as growth and inflation, we are still in the cycle of interest rate cuts, and there is great uncertainty in the timing selection, focusing on the end of the first quarter to the second quarter.
Wen Wen, chief economist of Minsheng Bank, also expects that the necessity and urgency of the current policy rate reduction is not high, but from the perspective of the central bank's statement, policy environment and actual demand, there may still be interest rate cuts in the follow-up (March to April), and it is expected to guide the LPR to decline moderately, thereby promoting a steady decline in financing costs, further activating the demand for production and consumer credit, and stabilizing economic operation.
China CITIC Bank and Bank of Jiangsu join the LPR quotation bank queue
It is worth noting that on January 19, according to the official website of the People's Bank of China, the National Interbank Lending Center was authorized to issue an announcement on the adjustment of the loan market quotation rate (LPR). The People's Bank of China's self-discipline mechanism for guiding interest rates has assessed the LPR quoting banks on and off the market, adjusted the LPR quotation banks according to the assessment results, and the adjusted list of LPR quotation banks has increased from 18 in the previous period to 20, and China CITIC Bank and Bank of Jiangsu have been added. The adjustment will be implemented from January 22.
This is also the list of LPR quotation banks that China CITIC Bank has returned to after two years.
The Loan Prime Rate (LPR) is a basic loan reference rate calculated and published by the National Interbank Lending Center authorized by the People's Bank of China, and each financial institution mainly refers to the LPR for loan pricing. The mechanism became operational in October 2013.
In August 2019, the People's Bank of China (PBOC) officially announced the reform and improvement of the LPR formation mechanism. The new LPR shall be submitted by each quoting bank to the National Interbank Funding Center in steps of 0.05 percentage points before 9 o'clock on the 20th of each month (postponed accordingly in case of holidays), and the National Interbank Funding Center will calculate the LPR by rounding up to the nearest whole number of 0.05% according to the arithmetic average after removing the highest and lowest quotations, and will be announced at 9:30 on the same day.
After the reform in 2019, the number of banks participating in the quotation was expanded from the initial 10 to 18. The newly added quotation banks are all small and medium-sized banks with greater influence in the loan market, strong loan pricing power, and better service for small and micro enterprises among banks of the same type, which can effectively enhance the representativeness of LPR.
List of LPR quotation lines. The reporter of Nandu Bay Finance Society sorted out the information on the official website of the central bank
On January 19, 2022, the list of LPR quotation banks was adjusted, and the list of 18 LPR quotation banks was determined after the adjustment, with Postal Savings Bank of China and Bank of Nanjing newly shortlisted, and Bank of Xi'an and China CITIC Bank not selected.
At the same time, in order to strengthen the expectation management and promote a better connection between the LPR release time and the operating time of the financial market, the LPR release time will be adjusted from 9:30 a.m. to 9:15 a.m. on the 20th of each month (postponed accordingly in case of holidays).
According to the regulations, the LPR quotation bank shall quote the price to the National Interbank Funding Center in accordance with the open market operation interest rate (mainly referring to the medium-term lending facility MLF interest rate). The National Interbank Funding Center calculates the loan prime rate based on the arithmetic average after removing the highest and lowest quotations.
Written by: Liu Changyuan, reporter of Nandu Bay Finance Society