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Cailianshe News, August 20 (Reporter Gao Ping)Today, the August loan market benchmark rate (LPR) quotes were released. The one-year LPR was 3.35%, the same as last month; the LPR for terms of more than five years was 3.85%, the same as last month. The interest rates for both one-year and more than five years remained unchanged.

Several industry insiders told Cailianshe reporters that the unchanged LPR is in line with market expectations. After the LPR quotation was lowered last month, the current focus is to guide the credit interest rates of enterprises and residents to follow suit; at the same time, considering that the overall macroeconomic situation is recovering and improving at this stage, various risks are effectively controlled, and the monetary policy has the conditions to maintain a prudent tone, there is little need to continuously lower the policy interest rate and guide the LPR quotation to follow up with a continuous downward adjustment. Looking ahead, the industry expects that there is still room for a slight downward adjustment in the LPR quotation this year.

The LPR rate remained unchanged in August, in line with market expectations

In the view of many industry insiders, the LPR rate remained stable this month, which was in line with expectations. Wang Qing, chief macro analyst at Orient Securities, said that the LPR quotations for the two maturity products had just been lowered by 10 basis points last month, and the main policy interest rate of the central bank (7-dayReverse repoInterest rates remain stable, so the unchanged LPR quotes for the two term products in August are in line with market expectations.

China Everbright BankZhou Maohua, a macro researcher at the Financial Markets Department, said in an interview with Cailianshe that the LPR rate, as a loan pricing benchmark, is affected by market supply and demand, risk premium, bank operating conditions and monetary policy trends. China continues to promote the reform and improvement of the LPR, continuously improve the marketization of the LPR and the quality of quotations, and promote the effective allocation of capital resources.

"From the perspective of the weak domestic demand for funds relative to supply, there is still some pressure to lower the LPR interest rate. But it mainly faces three obstacles." Zhou Maohua said, first, the policy interest rate remains stable. The second quarter monetary policy implementation report clearly pointed out that the LPR quotation should be guided to refer more to the short-term policy interest rate and give full play to the function of the term structure of the policy interest rate. Second, the LPR quotation experienced two large adjustments in the first half of the year, and the mortgage interest rate and the financing cost of the real economy continued to refresh the record low, and the policy effect continued to be released. Third, some banks are still facing a large narrowing of net interest margins and operating pressure.

It should be pointed out that the central bank made it clear in the "2024 Second Quarter Monetary Policy Implementation Report" released on August 9 that "LPR quotations have shifted to more reference to the central bank's short-term policy interest rate, and the interest rate transmission relationship from short to long is gradually being straightened out." Wang Qing said that this means that the central bank's 7-day reverse repurchase rate has been clearly defined as the main policy interest rate and has replaced MLF as the pricing basis for LPR quotations. The monetary policy transmission channel has also changed from the original "MLF→LPR→loan interest rate" to "central bank 7-day reverse repurchase rate→LPR→loan interest rate." This also establishes a path for the transmission of short-term interest rates to medium- and long-term interest rates.

"MLF will focus on 'weight rather than price'. Against the backdrop of limited room for reserve requirement ratio cuts in the future, it will mainly play the role of regulating the medium- and long-term liquidity of banks. The interest rate level will 'follow market trends', similar to the winning bid rate for treasury cash deposits, and the policy interest rate will be less colored," said Wang Qing.

The industry expects that there is still room for a slight downward adjustment in the LPR quotation this year

Looking ahead, Wang Qing said that considering the economic situation and price levels, the central bank may lower the main policy interest rate, that is, the 7-day reverse repurchase rate, again in the fourth quarter, with an estimated reduction of 10 to 20 basis points. At that time, the LPR quotation will be guided to follow suit.

Wang Qing predicts that after the central bank launched a "combination punch" of interest rate cuts in July, the next step will be to cooperate with the governmentBondsIssuance will support the proactive fiscal policy to achieve better results and promote a steady decline in corporate financing and household credit costs. Monetary policy will also remain flexible, with room for lowering the reserve requirement ratio and interest rates. All kinds of incremental policy reserves are in the policy toolbox.

Zhou Maohua also believes that from the perspective of the current conventional monetary policy tools and the performance of the deposit market, there is still room for LPR to be lowered. The fundamental determining factor for future reductions will still be whether the pace of macroeconomic, price and real estate recovery is ideal. These variables directly affect the policy benchmark interest rate and the supply and demand of the credit market.

"In the future, in addition to the policy of interest rate cuts to guide the reduction of LPR quotes, the regulators have stopped 'manual interest subsidies' since April, and banks have recently launched a new round of deposit rate cuts. These will help banks control their funding costs, stabilize their net interest margins, and increase the motivation of quoting banks to lower their LPR quotes." Wang Qing added.

Previously, the central bank pointed out that it is necessary to "continue to reform and improve the loan market benchmark rate (LPR), focus on improving the quality of LPR quotations to more truly reflect the level of loan market interest rates in response to the problem that some quoted interest rates deviate significantly from the actual most favorable customer interest rate." Wang Qing believes that this means that in the context of the downward trend in bank funding costs and the supply and demand relationship in the credit market leaning towards the demand side, some quoting banks lowered the loan interest rates for their most favorable customers in the early stage, but the LPR quotations given did not follow suit. Therefore, in the process of improving the quality of LPR quotations in the future, it is not ruled out that the policy interest rate remains unchanged and the LPR quotations are lowered separately.