① Economic performance is expected to continue to pick up until the end of the year, policy interest rates are expected to remain stable, and LPR prices will continue to remain unchanged. ② There is a high possibility that deposit interest rates will be lowered further in the future. Coupled with the subsequent issuance and implementation of special treasury bonds to supplement the core tier 1 capital by large state-owned commercial banks, commercial banks' interest spreads and operating pressure are expected to gradually ease. The possibility that next year's LPR quotes will be accompanied by further interest rate cuts in reverse repurchase interest rates is not ruled out.
Financial Services Association, November 20 (Reporter Gao Ping) Today, the People's Bank of China authorized the National Interbank Lending Center to announce that the loan market quoted interest rate (LPR) for November 2024 was 3.1% for 1-year LPR and 3.6% for LPR for 5 years or more. The LPR prices for both types of LPR remained unchanged from the previous month.
A number of industry insiders analyzed that the LPR did not change in November in line with market expectations. Mainly, the 7-day reverse repurchase interest rate anchor has remained stable. The country is in the phase of speeding up the release of stocks and incremental policy dividends, and banks continue to face pressure on net interest spreads. The current focus is on transmitting the effects of the “strong” policy interest rate cut in September and the sharp reduction in LPR prices in October to the real economy. There is no urgency to adjust LPR this month. Looking ahead to the later stages, the industry believes that there is room for interest rate cuts in 2025, and the possibility that next year's LPR quotes will be accompanied by further interest rate cuts along with reverse repurchase interest rates is not ruled out.
There is no urgency for short-term adjustments. LPR interest rates remained stable in November, in line with expectations
After LPR prices for the two term varieties were drastically lowered by 25 basis points in October, many industry insiders analyzed that the November LPR price remained unchanged, in line with market expectations. Wang Qing, chief macro analyst at Dongfang Jincheng, said that on the one hand, as the pricing basis for LPR quotes, the policy interest rate (central bank's 7-day reverse repurchase interest rate) remained stable after the September interest rate cut, which largely indicates that the November LPR price will remain unchanged.
“On the other hand, LPR quotes were lowered significantly in October. Coupled with banks' net interest spreads still facing some downward pressure, the quoting banks also lacked the incentive to further lower LPR quotes and points.” Wang Qing went on to say it.
Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, also said in an interview with a reporter from the Financial Association that the LPR has remained stable this month, and the market is already expected. Mainly, the 7-day reverse repurchase interest rate anchor has remained stable. The country is in the phase of speeding up the release of stocks and incremental policy dividends, and banks continue to face greater pressure on net interest spreads. According to recently released data, domestic consumption, investment, and real estate are all showing positive signs of recovery. The effects of the country's unprecedented macro-countercyclical adjustment policy are gradually being released, and there is no urgency to adjust the LPR this month.
“Commercial banks' LPR has been cut 3 times during the year, leading to a continuous decline in interest rates on physical enterprises and mortgages, and financial concessions to the real economy are unprecedented. The reduction in LPR plays an important role in reducing financing costs for the real economy, stabilizing the property market, and helping the economy recover.” Zhou Maohua said.
Regarding the November LPR price remained unchanged, the chief economist of CITIC Securities clearly stated that, on the one hand, the weighted average interest rate for loans fell to a historically low level of 3.67% in the third quarter monetary policy report, column 3 “Maintaining Competitive Order and Improving Policy Interest Rate Transmission” mentioned that “the current economic operation requires increased countercyclical adjustment, but further interest rate cuts face both internal and external constraints on net interest spreads and exchange rates”. After two rounds of sharp cuts in reverse repurchase interest rates in July and September, there may be significant pressure on short-term LPR prices to be lowered further. On the other hand, from the perspective of high-frequency data, there has been a marginal improvement in the commercial housing transaction area since October, and the results of the two rounds of interest rate cut policies during the year still need to be further observed.
Currently entering the policy effect observation period, the market is expected to downgrade in 2025 to save room for interest rate cuts
Wang Qing added that the fundamental reason LPR prices remained unchanged in November is that after the introduction of a package of incremental policies, the macroeconomic climate rose in October, the property market picked up significantly, and the main economic indicators have generally improved. The focus is on transmitting the effects of the “strong” policy interest rate cut in September and the sharp reduction in LPR prices in October to the real economy, guiding the downward financing costs of enterprises and residents, and continuously stimulating investment and consumption momentum to stop and stabilize the real estate market.
Looking forward to the future, Wang Qing believes that economic performance is expected to continue to recover before the end of the year, policy interest rates will remain stable, and LPR quotes will continue to remain unchanged. Focusing on stabilizing the real estate market, boosting economic growth momentum, promoting a moderate recovery in price levels, and effectively responding to possible changes in the external trade environment, the central bank will adhere to a supportive monetary policy stance in 2025, and will maintain a high level of flexibility. There is room for camera choices and interest rate cuts, and LPR prices will be lowered accordingly.
Looking back, it is clearly stated that in order to ease the pressure on interest spreads, there is a high possibility that deposit interest rates will be lowered further in the future. Combined with the subsequent issuance and implementation of special treasury bonds to support large state-owned commercial banks to supplement their core tier 1 capital, commercial bank interest spreads and operating pressure are expected to gradually ease. The possibility that next year's LPR quotes will be accompanied by further interest rate cuts in reverse repurchase rates.
Zhou Maohua, on the other hand, believes that the low domestic price environment, and there is sufficient room for conventional policies such as domestic downgrades and interest rate cuts. Considering short-term financial disturbances such as issuing government bonds, financial institutions are guided to increase support for the real economy and help get off to a good start. It is not ruled out that the central bank will introduce another downgrade measure around the end of the year. However, in terms of interest rate cuts, it is necessary to comprehensively consider aspects such as pressure on banks' net interest spreads, internal and external balance, etc., and further economic data guidance is needed.
