LPR unchanged for 7 consecutive months Expert: The need for a rate cut in the short term is not high

Per reporter Xiao Shiqing Per editor Ma Ziqing

In March, the LPR continued to "stand still". On March 3, the central bank authorized the National Interbank Lending Center to announce that the latest loan market quotation rate (LPR) is: 3-year LPR is 20.1%, and LPR over 3 years is 65.5%, both consistent with the previous period.

On the 15th of this month, the central bank's MLF operation interest rate remained at 2.75%, and the LPR was composed of MLF interest rates and quotation lines on this basis. At that time, a number of analysts said that the LPR was likely to remain unchanged this month.

In addition, in order to maintain reasonable and sufficient liquidity in the banking system, the central bank announced a comprehensive RRR reduction of 17.0 percentage points on the 25th of this month. Some experts have said that this means that the probability of a short-term interest rate cut is reduced.

The LPR remained unchanged in March

In March, LPRs of 3 year and more than 1 years remained unchanged. The reporter noted that this is the LPR unchanged for 5 consecutive months after the decline in August 2022.

Analyzing the reasons for the LPR not being adjusted, Wen Bin, chief economist of Minsheng Bank, said that it is mainly related to factors such as the maintenance of policy interest rates such as MLF, the rapid rise of market interest rates that has led to a sharp increase in the cost of bank liabilities, and the further pressure on the net interest margin of banks under the superposition of both ends of capital and negative ends, and there is no basis and space for corresponding downward adjustment of LPR quotations.

Wen Bin also pointed out that since the beginning of the year, market interest rates have risen rapidly, the cost of bank liabilities has risen, and the LPR increase point has been limited. The acceleration of the central bank's RRR reduction is also aimed at easing the pressure on banks' liabilities, but the RRR reduction is relatively small, and the cost of capital saved is relatively limited, which is not enough to promote the LPR downward adjustment for the time being.

Zhou Maohua, a macro researcher at the financial market department of China Everbright Bank, said that first, the MLF interest rate remained unchanged in March. MLF interest rate is LPR interest rate anchor, from historical experience, MLF interest rate and LPR synchronization is relatively high, the market has expected LPR interest rate to remain stable;

Second, the demand for credit in the real economy has rebounded. Financial data show that domestic credit exceeded expectations in January and February, household loans gradually picked up, and medium and long-term corporate loans remained strong, reflecting the steady recovery in China, and the confidence of residents and enterprises was recovering, driving credit demand to pick up, reflecting that the current credit market interest rate is in a reasonable range;

Third, some banks have high pressure on interest rate differentials. In recent years, in response to the downward pressure on the macroeconomy, the banking and financial sectors have increased counter-cyclical support, continued to make profits for the real economy and "tide over difficulties" with the real economy, corporate loan interest rates hit the lowest since statistical records, coupled with financial market fluctuations, the net interest margin of some banks continued to narrow, and some banking sectors were not willing to reduce the "plus point";

Fourth, LPR with a term of more than 5 years of LPR "does not move". Since the implementation of the domestic property stabilization policy combination, the domestic property market has shown a trend of stabilization and recovery; Release domestic real estate regulation and control to continue to implement policies according to the city, precise regulation and control, and stabilize property market expectations.

How will LPR "go" next?

Looking forward to the trend of interest rates and the direction of monetary policy regulation and control in the next stage, Wen Bin pointed out that the current domestic fundamentals are stabilizing and improving, wide credit is accelerating, and under the strengthening of corporate financing willingness and the stabilization of real estate bottoming, the necessity of cutting interest rates and lowering LPR in the short term is not high.

"The subsequent reduction of LPR still depends on the cumulative effect of MLF interest rate reduction and cost savings on the liability side of banks; 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, through differentiated 'targeted interest rate cuts', stimulating demand such as real estate and supporting important areas and weak links of the real economy is still the direction of policy guidance. Wen Bin said.

In Zhou Maohua's view, the LPR reduction generally needs to meet the conditions of weakening real financing demand, stable decline in bank debt costs (net interest margin pressure), MLF policy interest rate reduction, real estate recovery and other conditions. In the short term recovery from the domestic economy, the real estate recovery trend stabilized, some banks spread pressure, MLF stability, etc., the threshold for LPR reduction is relatively high.

Zhou Maohua continued to point out that from the perspective of moderate and controllable domestic prices, sufficient policy space, good overall performance of bank profits, and stable asset quality, LPR still has room to be reduced. However, future adjustments need to be determined by the overall situation of macroeconomic recovery, real economy financing and bank interest rate spread pressure.

Recently, the central bank's comprehensive RRR reduction has reduced the cost of bank liabilities, Zhou Maohua believes that the next step is to guide bank financial institutions to make full use of the deposit interest rate market-oriented adjustment mechanism, further tap the potential of LPR reform, etc., broaden the space for benefits to the real economy, effectively reduce the weak links of the real economy, support key emerging areas, and promote the acceleration of consumption and domestic demand momentum recovery.