LPR over 5 years dropped to 3.95%

  Expert: It will have a positive impact on the mortgage market; the monthly payment of a 30-year, 1 million yuan equal principal and interest mortgage for the first home will be reduced by about 145 yuan

  On February 20, the People's Bank of China authorized the National Interbank Funding Center to announce that the loan market quoted interest rate (LPR) on February 20, 2024 showed that the 1-year LPR was 3.45%, compared with 3.45% last month. The LPR over 5 years was 3.95%, compared with 4.2% last month.

  This month, the LPR of more than 5 years fell by 25 basis points alone. The decline exceeded previous market expectations. This is also the largest reduction in the history of LPR of more than 5 years. Many industry insiders interviewed said that the decline in LPR over five years will further reduce residents’ mortgage interest payments, promote the stable development of the real estate market, and more effectively stimulate the financing needs of enterprises and institutions.

  According to calculations by Ma Hong, a senior researcher at the Guangkai Chief Industry Research Institute, assuming that the loan balance of a first-time home is 1 million yuan, a mortgage with equal principal and interest, and a 30-year loan period is used as an example, the monthly payment will be reduced by approximately 145 yuan, and the total principal and interest accumulation over 30 years will be calculated. Reduce loan repayment by about 52,000 yuan.

  Interpretation 1

  Strength exceeds expectations, LPR lowered by 25 basis points over 5 years

  This month, the LPR cut interest rates asymmetrically. The LPR with a maturity of more than 5 years was reduced by 25 basis points, which exceeded the previous market expectation of a 10 basis point reduction. The last time the LPR with a maturity of more than 5 years was lowered was in June last year. The LPR with a maturity of more than 5 years was lowered by 25 basis points. It was revised down 10 basis points to 4.2%. Since the announcement of the LPR of more than 5 years, my country has had a total of 8 LPR cuts of more than 5 years, but the reduction range in the past was 5-15 basis points. This one-time cut of 25 basis points is the largest rate cut in history.

  Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, told the Beijing News reporter that this LPR reduction will help guide the further reduction of credit financing costs, benefit real estate, help reduce home purchase costs, release property market demand, and boost confidence in economic recovery.

  Zhou Maohua also pointed out that the country is currently in a critical period of confidence recovery and economic recovery, coupled with the uncertainty of overseas demand prospects, commercial banks have taken the lead and reasonably lowered loan quotation rates to further benefit the real economy, increase support for the real economy, and boost the economy. market confidence and promote economic revitalization.

  Wang Qing, chief analyst of Oriental Jincheng Macroeconomics, believes that the direct reason for the decrease in LPR quotations with a term of more than 5 years is that due to factors such as the recent implementation of the required reserve ratio reduction, banks' capital costs have dropped, and quoting banks have the motivation to lower LPR quotation points.

  The MLF operating interest rate remained stable in February, which means that the pricing basis of the LPR quotation that month has not changed. However, the RRR reduction was implemented that month, releasing 1 trillion in long-term funds, which can save banks about 9 billion in capital costs every year. At the same time, major domestic banks lowered deposit interest rates in November and December 2023, and the central bank lowered the re-lending and rediscount rates to support agriculture and small businesses by 0.25 percentage points on January 25, which also played a role in the recent decline in bank capital costs. Promoting effect.

  Interpretation 2

  The biggest interest rate cut will help the real estate market and consumption recover steadily

  As the anchor of long-term interest rate pricing, the adjustment of LPR over 5 years is related to important market pricing including long-term investment, residential mortgage loans, etc. Among them, the pricing of residential mortgage loans is based on LPR plus points for a term of more than 5 years. In other words, after the LPR is lowered, the interest rates of new housing loans will also decrease, and the interest rates of existing housing loans will also be adjusted accordingly on the re-pricing date.

  Yan Yuejin, research director of E-House Research Institute, believes that the largest interest rate cut cycle in history has begun. The interest rate cut has a positive impact on the real estate market. The real estate market is currently in the stage of stabilizing and recovering, but the recovery process needs to be consolidated. The interest rate cut is beneficial to the reduction of capital costs and directly leads to the reduction of mortgage loans, which will have a positive impact on the mortgage market.

  Ma Hong said that lowering the mid- to long-term LPR benchmark interest rate will help reduce the repayment pressure on residents purchasing real estate and existing mortgage loans. Since the current recovery in commercial housing sales is less than expected, the restoration of market confidence requires more policy support and patience. Based on the reduction of the LPR benchmark interest rate of more than 5 years, the subsequent commercial bank mortgage interest rates will also be reduced accordingly. The loan discount this time is relatively significant, and it is expected to promote incremental home purchases and other consumption areas in the future, driving the decline in commercial housing sales during the year to narrow compared with 2023.

  In fact, the current real estate recovery is relatively lagging, and the active transactions of second-hand houses are regarded by the market as the most important contributor to the rebound in residents' financing demand. According to the Ministry of Housing and Urban-Rural Development, from January to November 2023, the national second-hand housing transaction volume and the sales area of ​​new commercial housing increased by 6.9% compared with the same period in 2022. The second-hand housing transaction volume accounted for nearly 40% of the total new and second-hand housing transactions, compared with the previous year. It increased by about 10 percentage points over the same period last year, and the proportion of second-hand housing transactions in some major cities even exceeded 50%.

  Industrial Research believes that the improvement in the weighted growth rate of primary and second-hand housing transactions reflects the impact of the low base to a certain extent. Its two-year compound growth rate is still at a low level. After the impact of the low base subsides, the transaction growth rate may fall back again.

  Zhou Maohua also pointed out that due to the long upstream and downstream industrial chain of real estate, real estate is still in the stage of stabilization and recovery, which has a significant drag on domestic consumption and investment. Increased domestic support for real estate will help to accelerate the recovery of effective demand.

  Interpretation 3

  One-year LPR "on hold" will help stabilize bank net interest margins

  Unlike the significant decrease in LPR over 5 years, the 1-year LPR remained unchanged this month, which is also in line with market expectations. On February 18, as the anchor rate of LPR, the medium-term lending facility (MLF) interest rate was not lowered, which reduced the possibility of a downward adjustment of the 1-year LPR.

  Yang Chang, chief executive of Zhongtai Securities, believes that this asymmetric downward adjustment sends multiple signals. Monetary policy is also cooperating with the stable start of the economy. After the Spring Festival holiday, it is more obvious to work from the capital supply side by reducing loan interest and financing costs to support the stable start of the economy in 2024. At the same time, it also shows that the policy is focused on the objects it hopes to play a role in. Keeping the one-year LPR unchanged may indicate that the intention to stimulate manufacturing investment and consumption is relatively stable.

  Wang Qing believes that if the 1-year LPR quotation remains unchanged, it will help stabilize the bank's net interest margin, which is already at a historically low level, and make room for a significant reduction in the 5-year or above LPR quotation. However, due to the impact of low price levels, the current actual financing costs of the real economy are rising. With an eye on boosting total macroeconomic demand, the LPR quotation may still follow the MLF interest rate cut in the future.

  "Based on the current economic and price trends, it is still more likely that the MLF interest rate will be lowered in the short term." Wang Qing pointed out that this will drive the LPR quotations of the two maturity varieties to continue to decrease, which will in turn drive the corporate and residential loan interest rates to continue to decline, boosting the Macroeconomic aggregate demand. At the same time, the continued reduction in LPR quotations has driven downwards the loan interest rate, which will also provide more favorable conditions for resolving local debt risks this year.

  Beijing News reporter Jiang Fan