Financial Services Association, August 20 (Reporter Gao Ping) Today, the loan market quoted interest rate (LPR) price for August was released. The 1-year LPR was 3.35%, compared to 3.35% last month; the LPR for 5 years or more was 3.85%, compared to 3.85% last month. Interest rates for 1-year terms and above remained unchanged.

A number of industry insiders analyzed that the LPR remains unchanged in line with market expectations. After the LPR price was lowered last month, the current focus is on guiding enterprises and residents to follow up and lower credit interest rates; at the same time, considering that the macroeconomy is generally recovering and various risks are effectively controlled at this stage, there is little need for monetary policy to adhere to a steady tone, continuously lower policy interest rates, and guide LPR quotes to follow up the continuous reduction. Looking ahead to the later stages, the industry expects that there will be room for a slight reduction in LPR prices during the year.

The LPR interest rate remained unchanged in August, in line with market expectations

According to many industry insiders, LPR interest rates have remained stable this month and are in line with expectations. Wang Qing, chief macro analyst at Dongfang Jincheng, said that the LPR prices for the two term varieties were just lowered by 10 basis points each last month. In addition, the central bank's main policy interest rate (7-day reverse repurchase interest rate) remained stable before the current quotation, so the LPR prices for the two term varieties remained unchanged in August in line with the general expectations of the market.

Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, said in an interview with a reporter from the Financial Association that the LPR interest rate is the benchmark for loan pricing, and its trend is influenced by market supply and demand, risk premiums, bank operating conditions, and monetary policy trends. The country continues to promote LPR reform and improvement, continuously improve the degree of LPR marketization and quotation quality, and promote the effective allocation of capital resources.

“In terms of current domestic capital demand being relatively weak in supply, there is still some downward pressure on LPR interest rates. However, it mainly faces resistance on three fronts.” Zhou Maohua said, the first is that policy interest rates have remained stable. The monetary policy implementation report for the second quarter clearly states that LPR quotes should be guided to refer more to short-term policy interest rates and give full play to the function of the policy interest rate term structure. Second, in the first half of the year, LPR quotes experienced two major adjustments. Mortgage interest rates and financing costs for the real economy continued to set new record lows, and the effects of the policy continued to be released. Third, some banks are still facing significant narrowing of net interest spreads and operating pressure.

It should be pointed out that in the “Monetary Policy Implementation Report for the Second Quarter of 2024” released by the central bank on August 9, it is clear that “LPR quotes are shifting more to reference the central bank's short-term policy interest rates, and the transmission relationship between short and long interest rates is gradually being straightened out.” Wang Qing said that this means that the central bank's 7-day reverse repurchase interest rate has been clarified as the main policy interest rate, and MLF has replaced MLF as the pricing basis for LPR quotes. The transmission channel for monetary policy has also changed from the original “MLF → LPR → loan interest rate” to “central bank 7-day reverse repurchase interest rate → LPR → loan interest rate”. At the same time, it also established a path for short-term interest rates to be transmitted to medium- to long-term interest rates.

“MLF, on the other hand, will 'weigh less. 'In a context where there is limited room for future downgrades, it will mainly play a role in regulating the medium- to long-term liquidity of banks. The interest rate level will 'follow the market', similar to the winning interest rate for treasury cash deposits, and the color of policy interest rates will be reduced.” Wang Qing said.

The industry expects there is still room for a slight reduction in LPR prices during the year

Looking ahead to the later stages, Wang Qing said that taking into account economic trends and price levels, the central bank is likely to lower the main policy interest rate again in the fourth quarter, that is, the 7-day reverse repurchase interest rate. The reduction is estimated to be 10 to 20 basis points. At that time, the LPR price will be guided to follow up the downward adjustment.

Wang Qing expects that after the central bank's “combo punch” of interest rate cuts in July, the next step is to cooperate with the issuance of government bonds, support active fiscal policies to be more effective, and promote a steady decline in corporate financing and residents' credit costs. Monetary policy will also remain flexible. There is room for interest rate cuts, and all kinds of incremental policy reserves are in the policy toolbox.

Zhou Maohua also believes that in terms of current monetary policy instruments and deposit market performance, there is still room for reduction in LPR. The fundamental deciding factor for future downsizing is whether the pace of macroeconomic, price, and real estate recovery is ideal. These variables directly affect policy benchmark interest rates and credit market supply and demand conditions, etc.

“In the future, in addition to policy interest rate cuts leading to lower LPR quotes, the supervisory authorities have stopped 'manual interest payment' since April. Recently, banks have initiated a new round of deposit interest rate cuts, all of which will help banks control bank capital costs, stabilize bank net interest spreads, and increase the incentive for quoting banks to lower LPR quotes.” Wang Qing added.

Earlier, the central bank pointed out that it should “continue to reform and improve the loan market quoted interest rate (LPR), focus on improving the quality of LPR quotes and more truly reflect the interest rate level in the loan market in response to the problem that some quoted interest rates deviate significantly from the actual best customer interest rate.” Wang Qing believes that this means that in the context of declining bank capital costs and the supply-demand relationship in the credit market being skewed towards the demand side, some quoting banks cut loan interest rates for their most favorable customers in the early stages, and the LPR quotes given were not lowered accordingly. As a result, in the process of improving the quality of LPR quotes in the future, the possibility that policy interest rates will remain unchanged and LPR quotes will be lowered separately is not ruled out.