Both major markets' interest rates are rising, will there be a future interest rate cut?

Wind ·  Jun 20 15:53

Source: Wind.

In June, LPR remained unchanged, in line with market expectations. As the end of the month approaches, both major market interest rates have risen, and it is worth paying attention to whether there is still room for interest rate cuts in the future.

In June, LPR remains unchanged.

The People's Bank of China authorized the National Interbank Funding Center to announce that the loan market quoted interest rate (LPR) on June 20, 2024, is: 1-year LPR is 3.45%, and 5 years or more LPR is 3.95%. Wind data shows that this is the fourth consecutive month that 5-year LPR has remained unchanged since the central bank lowered it to 3.95% in February. The 1-year LPR remained unchanged 10 consecutive months after a reduction in August last year.

Recently, Pan Gongsheng, the governor of the People's Bank of China, stated at the 15th Lujiazui Forum that the market-oriented interest rate control mechanism should be further improved. Continuously reform and improve the loan market quoted interest rate (LPR), focus on improving the quality of LPR quotes for those do not accurately reflects the actual most favorable customer interest rate, and more effectively reflect the level of loan market interest rates.

Shibor overnight rate continues to rise.

Recently, interbank rates in Shanghai continue to rise. Wind data shows that as the end of the month and quarter approaches, Shibor's overnight rate on June 20th reported 1.877%, reaching a new high since May. This is also the third trading day since June that the rate has been around 1.8% or higher. The rate is still not far from the highest point of this year on April 30, of 1.921%. It can be seen that as the end of the month and quarter approaches, interbank market interest rates continue to rise.

Overall, Shibor's overnight rate has fluctuated between 1.5% and 1.9% this year without a significant increase or breakthrough beyond 2%. It operated mostly below 1.8%, with only a few short-term increases just before the end of the month or quarter. Overall, interbank funding has been generally sufficient this year, and the probability of a sharp increase in rates in the last few trading days of the month with the increased injection of funds by the central bank in open market operations is relatively low.

The interest rates of the exchange-traded treasury repurchase agreements have increased.

As the end of the month and quarter approaches, the annualized interest rates of exchange-traded treasury repurchase agreements have also increased. Wind data shows that on June 20th, 15 out of 18 varieties had increased or remained unchanged, occupying the majority. Among them, the 14-day varieties that cover the end of the month have an annualized interest rate that has exceeded 2%, which is a recent high, but still far from the end of March and April.

Is there still room for interest rate cuts in the future?

The Changjiang Securities Ma Xiangyun team believes that further interest rate cuts face both internal and external constraints. Internally, banks' net interest margin is already too low, and the net interest margin of commercial banks in the first quarter of 2024 fell by 15BP to a record low of 1.54%. The central bank has mentioned multiple times that profits are an important source of bank capital supplementation, and that too low net interest margins will affect the ability of banks to sustainably serve the real economy. Externally, since 2023, the interest rate spread between China and the United States has been continuously inverted, and the current inversion has exceeded 200BP. Therefore, it is judged that the probability of further interest rate cuts in the short term is limited.

Zhou Maohua, a macro researcher in the Financial Market Department of China Everbright Bank, said that the stable LPR rate in June is mainly due to the continued pressure on net interest margins of domestic commercial banks. The overall policy of lowering the lower limit of individual housing loan interest rates is conducive to meeting the needs of both first-time buyers and those who wish to improve their housing, and boosting confidence in the property market. However, the threshold for short-term adjustments in LPR rates by commercial banks is not low.

The macro team of Sinolink Securities, Jie Yunliang and Xiao Zhangyu, believes that there is still a probability of interest rate cuts in the third quarter. Firstly, the GDP growth rate accelerated in the third quarter of last year, and the third quarter of this year will face a high base. If economic momentum continues to weaken, there is a risk that the growth rate in the third quarter will fall below 5%. Secondly, the United States, Europe and other economies have announced plans to impose tariffs on Chinese electric vehicles and other goods. In the future, if there are increases in geopolitical disturbances, the central bank may lower policy rates.


The translation is provided by third-party software.

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