The last instalment of the year's market** interest rate (LPR) came as scheduled. On December 20, the People's Bank of China disclosed the latest LPR. The 1-year LPR is 345%, and LPR for more than 5 years is 42%。
As expected by the market, the two major ** are consistent with the previous value. So far, the one-year LPR has remained unchanged for four consecutive months, and the LPR for more than five years has remained unchanged for six consecutive months. Analysts pointed out that in 2024, the People's Bank of China will most likely still guide the LPR to decline moderately, which will then promote the steady decline in financing costs and activate the demand for production and consumer credit.
The LPR remains the same.
On December 20, the People's Bank of China authorized the National Interbank Lending Center to announce that the LPR on December 20, 2023 is: 1-year LPR is 345%, and LPR for more than 5 years is 42%。The above LPR is valid until the next LPR is issued.
Looking back at the trend of LPR during the year, the 1-year LPR was lowered by 10 basis points in June and August 2023, and has remained unchanged for four consecutive monthsThe LPR for more than 5 years was only lowered by 10 basis points in June 2023, and it has not changed for six consecutive months. Currently, both LPRs are at record lows.
The market had expected the LPR to remain unchanged this month. On December 15, the People's Bank of China (PBoC) launched a 50 billion yuan open market reverse repurchase operation and a 1.45 trillion yuan medium-term lending facility (MLF) operation, with interest rates respectively. 5%, unchanged from the previous year. The continuation of MLF's "volume increase and price parity" sequel has also greatly reduced the probability of LPR** reduction this month.
Wen Bin, chief economist of China Minsheng Bank, pointed out that the MLF interest rate + plus points form LPR**, and the MLF interest rate is the anchor interest rate of LPR, and its changes will have a direct and effective impact on LPR. The policy rate has remained stable in the near future due to multiple considerations such as two interest rate cuts during the year, successive reductions in the interest rates of old and new mortgages, and multiple considerations such as stabilizing the exchange rate, stabilizing interest rate spreads, improving efficiency, and air resistance.
In addition to the fact that the MLF policy rate remains unchanged, factors such as the continued high operation of market interest rates also have an impact on the LPR. Since August 2023, affected by the issuance scale of special refinancing bonds and trillions of treasury bonds, the market capital has maintained a tight balance, and interest rates have mostly run above the policy rate. Towards the end of the year, the demand for funds for institutions has increased significantly.
On December 20, the Shanghai Interbank Offered Rate (SHIBOR) basically rose across the board. One of the overnight SHIBOR went up 22 basis points, 1592%；7-day SHIBOR upside 17 basis points, at 1784%；The 14-day shibor was reported at 2429%, unchanged from the previous trading day.
Wen Bin said that considering that there are many disturbance factors at the end of the year and the beginning of the year, the tightening of liquidity margin is the norm, and the overall market interest rate will remain at a high level, and the probability of a sharp decline is not high. At the same time, the short-term and medium- and long-term market funding rates are at a high level, exceeding the policy interest rate, which means that the cost of funds for banks has increased significantly compared with the previous period, which directly weakens the motivation of the bank to reduce the LPR markup.
Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, said that the macroeconomic data in November showed that China's domestic demand showed a steady recovery trend, and credit grew steadily and moderately in November. In the first 11 months of 2023, the total amount of new credit has exceeded the scale of last year, and the overall loans to the real economy and social financing have exceeded expectations, reflecting that the interest rate of the loan market is in a reasonable range, and the urgency of short-term LPR interest rate reduction is not high.
Banks' net interest margins came under pressure.
According to the plan of the People's Bank of China, the LPR will announce the new issue on the 20th of each month (postponed accordingly). In recent years of market change, the 1-year LPR has changed from 431% cumulatively reduced to 345%, and LPR for more than 5 years is from 485% to the current 42%。
The decline in LPR also means a decline in the interest rate on loans to enterprises and residents. In particular, LPR with a maturity of more than 5 years for related housing loans has attracted more attention in the changes in the real estate market in the past two years. On December 14, Beijing and Shanghai relaxed their real estate purchase restrictions on the same day, further relaxing the lower limit of mortgage loan interest rates, ordinary housing standards, and minimum down payment ratios.
Among them, since December 15, the lower limit of the interest rate policy for the first set of commercial personal housing loans newly issued in the six districts of Beijing is LPR+10 basis points, and the lower limit of the second set of interest rate policies is LPR+60 basis points;The lower limits of the first and second sets of interest rate policies in the six non-urban districts are LPR and LPR + 55 basis points respectively.
Under the combined downward impact of new and existing loan interest rates, bank interest margins further narrowed to 173% all-time low. In Wen Bin's view, the downward pressure on the pricing of bank assets has not decreased. In the next stage, with the rolling repricing of existing loans, the centralized arrangement of "interest rate reduction and extension" faced by banks under the debt, the inflection point of new loan interest rates under insufficient effective financing demand, and the high cost of liabilities, the pressure on banks' net interest margins is difficult to change in the short term, and there is no motivation and space to reduce LPR** again.
Banks' net interest margins are still under pressure, mainly because domestic banks continue to guide banks and financial institutions to further benefit the real economy, and on the other hand, the proportion of fixed deposits in bank deposit liabilities is still high. In addition, a series of policy combinations to stabilize the property market have been introduced, and there is still room for the release of policy dividends such as positive fiscal and monetary policies. Zhou Maohua added.
Focusing on real estate regulation, Zhou Maohua said that there is still room for the previous package of policy measures to stabilize the property market, and the focus is that each region should make good use of policy tools and space according to the supply and demand situation of the local market, stabilize expectations, and let policy dividends continue to be released.
Zhou Maohua believes that with the steady recovery of the economy, the scar effect of residents will gradually fade out, and the cumulative effect of the domestic package of policies to stabilize the property market (force at both ends of supply and demand) will be released, and the real estate is expected to gradually stabilize and rebound. However, the tone of domestic real estate regulation is still to insist on housing for living and not speculation, emphasizing city-specific policies and precise regulation and control to better meet rigid demand and improved demand.
There is still room for downward adjustment in the future.
Since the second half of 2023, a number of important financial work conferences and documents have mentioned monetary policy, loan interest rates, and financing costs. Among them, the first financial work conference proposed to increase policy implementation and work promotion, maintain reasonable and abundant liquidity, and continue to reduce financing costsThe People's Bank of China's monetary policy implementation report for the third quarter of 2023 requires that the guidance of the LPR on the real lending rate be strengthened to promote a steady decline in the financing cost of the real economy.
On December 15, the Party Committee of the People's Bank of China held an enlarged meeting to convey the spirit of the Economic Work Conference on Xi. The meeting proposed that a variety of monetary policy tools should be used comprehensively to maintain reasonable and abundant liquidity, and the scale and amount of social financing should match the expected targets of economic growth and the highest level. We will increase counter-cyclical and cross-cyclical adjustments, guide the rational growth and balanced allocation of credit, and improve the quality and efficiency of financial support for the real economy. We will continue to deepen the market-oriented reform of interest rates and promote a steady and moderate decline in the cost of comprehensive social financing.
With the relaxation of real estate policies, the market has more expectations for the subsequent LPR reduction. Although the LPR has remained at the same level for many months, market analysts generally believe that there is still room for the LPR to be reduced.
In Wen Bin's view, the People's Bank of China will most likely still guide the LPR to decline moderately in 2024, which will then promote a steady decline in financing costs and activate the demand for production and consumer credit. However, considering that in the current credit delivery process, some loan interest rates have been excessively lowered and deposit and loan interest rates have been "inverted", which has led to the phenomenon of capital idling and disrupted the effectiveness of deposit and loan interest rate reform. Under the interest rate transmission mechanism of "market interest rate + central bank guidance LPR lending rate", the further downside of LPR and new loan interest rates will be narrowed.
Wen Bin pointed out that in order to achieve "flexibility, moderation, precision and effectiveness", the structure is also expected to play a greater role. Through the combination of total volume and structure, reduce investment and consumption costs, meet the financing needs of the real economy, and achieve multiple effects such as "stabilizing the total amount, adjusting the structure, and reducing costs". Structural tools such as PSL, "targeted rate cuts" in the real estate sector are still in the policy toolbox.
Wen Bin expects that in 2024, there will still be measures to control the cost of banks' liabilities, such as continuing to reduce the listed interest rate of deposits or the upper limit of MPA assessment, further self-discipline and regulation of high-interest active liability products such as agreements, notices, and agreements, and promoting small and medium-sized banks to reduce long-term deposit interest rates.
Zhou Maohua also stressed that it is expected that the LPR will still be lowered to a certain extent in the future, mainly to guide financial institutions to reasonably reduce the comprehensive financing cost of the real economy, reduce the cost of consumption and investment, further boost the vitality of micro entities, and help accelerate the recovery of the economy. At the same time, considering that it will take some time for the pressure on banks' net interest margin to ease, the downward trend of LPR interest rates needs the support of the central bank's number + ** reform to guide the entire market interest rate pivot downward, and the follow-up RRR cuts, interest rate cuts, directional structural and other tools are in the toolbox, and the prudent and slightly loose monetary policy remains flexible.
Beijing Business Daily reporter Liao Meng.