LPR has been "standing still" for 7 consecutive months, will the mortgage fall in the future?

China News Network, March 3 (Zhongxin Finance Gong Hongyu) On the 20th, the central bank authorized the National Interbank Lending Center to announce the new loan market quotation rate (LPR). Among them, the 20-year LPR was 1.3%, and the LPR over 65 years was 5.4%, both unchanged from the previous month.

This also means that the LPR has remained unchanged for seven consecutive months since its decline in August 2022. Experts say there is relatively limited room to continue to guide LPR decline in the short term. However, through "targeted interest rate cuts" to boost demand such as real estate, it is still the direction of policy guidance.

Historical chart of LPR symbols.

LPR unchanged as expected

On the 17th, the central bank announced that it would reduce the deposit reserve ratio of financial institutions by 3.27 percentage points on March 0. This "more than expected" RRR cut has also triggered speculation about whether the LPR can be lowered this month.

However, against the backdrop of the central bank's March 3 medium-term lending facility (MLF) operation winning the bid rate unchanged from the previous month, a number of experts said that the pricing basis of the LPR quotation in March has not changed, and the LPR this month remains unchanged in line with expectations.

In addition, Dong Ximiao, chief researcher of CMF Finance, mentioned that since the beginning of this year, RMB loans have grown rapidly, and the rapid expansion of credit has led to an increase in bank debt pressure, increased costs, and insufficient motivation to reduce points.

Yuan loans increased by 2.1 trillion yuan in February, up 81.5928 billion yuan year-on-year, central bank data showed. Since the beginning of the year, the volume and price of interbank certificates of deposit issued by banks have risen, and the weighted average interest rate of interbank certificates of deposit from March 3 to 1 was 15.2%, higher than the average interest rate of 66.1% in January and 2.45% in February.

"This RRR reduction can release 5000-6000 billion yuan of low-cost funds and promote the cost of bank liabilities to reduce by about 60 billion yuan, but it is not enough to achieve the adjustment step of 5 basis points per LPR quotation." Wen Bin, chief economist of Minsheng Bank, said.

Dong Ximiao also analyzed that the LPR remained unchanged this month, and it may also take into account that the loan interest rate has been at a historical low and the internal and external equilibrium and other issues. Since 2022, LPR with a maturity of more than 5 years has fallen three times, and corporate loan interest rates are at a low level. In the case of the United States still raising interest rates, LPR remains unchanged, which also helps the RMB exchange rate to remain basically stable.

Infographic: RMB. Photo by Gong Hongyu

LPR has limited room for future reduction, but will mortgages fall?

In Wen Bin's view, the subsequent reduction of LPR still depends on the cumulative effect of MLF interest rate reduction and cost savings on the bank liability side; Moreover, the central bank believes that the current level of real interest rates is more appropriate, and the space for continued guidance of LPR to decline in the short term is relatively limited.

However, he also said that through differentiated "targeted interest rate cuts", boosting demand such as real estate and supporting important areas and weak links of the real economy is still the direction of policy guidance.

"With the property market being clearly differentiated according to the city, the effect of the general decline in LPR needs to be reassessed." Li Yujia, chief researcher of the Housing Policy Research Center of the Guangdong Urban Planning Institute, also mentioned.

In January, the central bank and the China Banking and Insurance Regulatory Commission issued a notice that cities where the sales price of newly built commercial residential buildings has decreased for three consecutive months can maintain, reduce or cancel the lower limit of the local first home loan interest rate policy in stages. In Li Yujia's view, this policy is actually the refinement of LPR or the deepening of city-specific policies.

Compared with the general decline in LPR, Li Yujia believes that LPR is further differentiated, and the city-specific policies will help to more accurately support cities with a significant decline in the property market, and stabilize the demand fundamentals and market expectations of cities with falling house prices by reducing monthly mortgage payments, and play a role in supporting the market. (End)