China News Service, August 15th (Zhongxin Finance and Economics Gong Hongyu) After 7 months of inactivity, the central bank finally implemented a "interest rate cut" on "spicy noodles".

　　On August 15, the central bank launched a 400 billion yuan medium-term lending facility (MLF) operation (including the renewal of the MLF expiry on August 16) and a 2 billion yuan open market reverse repurchase operation.

The winning rates for medium-term lending facility (MLF) operations and open market reverse repurchase operations were 2.75% and 2.0%, respectively, down 10 basis points from the previous period.

　　The reduction of the winning interest rate this time makes many people feel "sudden". What new signals are conveyed behind this?

Will the loan market quoted rate (LPR) be lowered?

Data map: RMB.

Photo by Gong Hongyu

Why "cut interest rates"

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　　Based on the multiple factors of historically low corporate loan interest rates, structural inflation pressures and interest rate hikes in the United States, many market participants previously predicted that MLF interest rates may remain unchanged.

　　However, Dong Ximiao, chief researcher of China Merchants Union Finance and a part-time researcher of the Financial Research Institute of Fudan University, said in an interview with Zhongxin Finance that the rate cut was reasonable and expected.

　　Central bank data show that in July, RMB loans increased by 679 billion yuan, a decrease of 404.2 billion yuan year-on-year; the increase in social financing scale was 756.1 billion yuan, 319.1 billion yuan less than the same period last year.

　　"This reflects that the financing needs of my country's real economy are weak, and the recovery situation is not stable. It is imminent to increase efforts to support the real economy." Dong Ximiao said.

　　Wen Bin, chief economist of China Minsheng Bank, mentioned that since August, credit demand has continued to be weak, and the bill interest rate has been running at a low level, reflecting the lack of endogenous economic vitality and effective demand after the impact of the epidemic has not been fully restored.

In this context, the central bank needs to take certain counter-cyclical adjustment measures to alleviate the situation of increasing downward pressure on the economy and boost market confidence.

　　Wen Bin also pointed out that both real estate development loans and mortgage loans performed poorly in the second quarter, and the overall downward pressure continued to increase.

In the context of reduced household income and large debt burden, lowering the policy interest rate to guide the reduction of LPR will also help to release dividends on existing mortgage loans and increase household consumption expectations.

　　In response to some people who believe that interest rate cuts are not conducive to controlling inflation and other voices, Dong Ximiao analyzed that my country's inflationary pressure is still under control, and between stable growth and anti-inflation, stable growth should be the first priority.

In addition, although corporate loan interest rates are at a low level, some companies do not have a strong "sense of gain", and there is still room for interest rate cuts.

What is the impact on the property market and the stock market?

　　What is the meaning of this round of "interest rate cuts"?

Dong Ximiao said that the decline of the two interest rates, on the one hand, sends a positive signal that more efforts will be made to support the real economy and stabilize growth; .

　　Wen Bin pointed out that cutting interest rates will help boost the stock market.

In addition, under the unexpected rate cut, the bond market interest rate has fallen sharply, and the 10-year treasury bond interest rate has broken down to 2.7%. In the follow-up, under the combined effect of the overall downward movement of the interest rate center, loose liquidity and the slow process of economic recovery, Bond market interest rates are "easy to go down and hard to go up", with little room for upside, and will remain low and volatile as a whole.

　　In addition, the increase or decrease of the MLF interest rate will generally be transmitted to the LPR interest rate, which will eventually affect the loan interest rate. Therefore, there is room for further adjustment of the mortgage interest rate.

This year, the 5-year LPR was cut in both January and May.

In Wen Bin's view, the rate cut will improve the real estate financing chain, but the specific improvement still requires continuous observation and comprehensive efforts of other supporting measures.

Data map: People's Bank of China.

Photo by China News Agency reporter Zhang Xinglong

Will the LPR for more than 5 years be lowered?

　　Wen Bin said that after the policy interest rate cut this time, the possibility of a simultaneous reduction of the one-year and more than five-year LPRs this month is not ruled out, but the probability of asymmetrical reduction of LPRs more than five years is greater.

　　He explained that judging from the 1-year LPR quotation, the current level of 3.7% is relatively low. If we consider the increasing contradiction between credit supply and demand, and banks' "should invest", the loan interest rate spread for high-quality enterprises will drop, and the liquidity will be reduced. The interest rate level of sexual loans or even lower, and even formed an inversion with the pricing of some time deposits.

　　"Under this circumstance, if we continue to guide the downward adjustment of the 1-year LPR, it is easy to intensify the arbitrage behavior of enterprises and increase the risk of capital idling. However, if the subsequent economic recovery is less than expected, the restoration efforts such as consumption and investment will continue to be weak, and the 1-year period will continue to be weak. There is still room to lower LPR rates.”

　　Wen Bin said that in terms of LPRs with a term of more than 5 years, in the current weak environment for housing-related loans, compared with the 70-90% mortgage interest rates actually implemented in previous years, there is still a large room for mortgage loan interest rates to fall.

In addition, the current spread between the 5-year and 1-year LPR curves is still 75 basis points, and there is still room for adjustment.

(Finish)