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on september 20, the people's bank of china (hereinafter referred to as the "pboc") authorized the national interbank funding center to announce the new loan market quotation rate (lpr). among them, the 1-year lpr is 3.35%, which was 3.35% last month; the lpr for more than 5 years is 3.85%, which was 3.85% last month, maintaining the previous quotation unchanged.

on the same day, the central bank conducted a reverse repurchase operation of 571.9 billion yuan in a fixed interest rate and quantity bidding method. among them, the interest rate of the 7-day reverse repurchase operation in the open market remained unchanged at 1.7%.

lpr is the main reference benchmark for loan interest rate pricing. the current net interest margin of banks is generally low, and the 7-day reverse repurchase operation rate in the open market has remained unchanged recently, which may indicate that the lpr quotation in september will remain unchanged.

after the fed’s interest rate cut, the gap between china and the us interest rates narrowed, the pressure on the depreciation of the rmb exchange rate eased, and the operating space of my country’s monetary policy expanded. however, my country’s monetary policy emphasizes “self-centeredness”. experts believe that although the central bank did not immediately cut interest rates in september, it is likely to cut interest rates in the fourth quarter.

lpr quotation remains unchanged, and interest rate cut is expected to be implemented in the fourth quarter

lpr is the main reference benchmark for loan interest rate pricing. it is quoted monthly by 20 quoting banks based on their loan interest rates for the best loan customers in accordance with market principles, and the quoted interest rate is calculated by the arithmetic average of the national interbank funding center. at present, the 7-day reverse repurchase operation rate in the open market has a certain reference role in lpr quotation.

the current level of bank net interest margin is generally low, and the lpr quotation is limited to continue to decline in the short term. in addition, the 7-day reverse repurchase operation rate in the open market has remained unchanged at 1.7% in the past two months, which may indicate that the lpr quotation will remain unchanged in september.

at present, my country's economic stability still faces some challenges, and the market is looking forward to the central bank launching a new round of interest rate cuts. the political bureau of the cpc central committee meeting held on july 30 clearly called for "strengthening counter-cyclical regulation". recently, the heads of relevant departments of the central bank also released signals that monetary policy will "increase regulation and control efforts" and "further reduce corporate financing and resident credit costs".

after the fed's interest rate cut, the gap between china and the us interest rates narrowed, the pressure on the depreciation of the rmb exchange rate eased, and the operating space of my country's monetary policy expanded, but it does not mean that the central bank must cut interest rates immediately. wang qing, chief macro analyst at orient securities, pointed out that considering the economic and price trends in the future, as well as the macro policy orientation, it is expected that the central bank is likely to cut interest rates by 0.1-0.2 percentage points in the fourth quarter.

he also believes that the policy side will further increase support for the real estate industry. it is expected that the second round of interest rate cuts for existing mortgage loans will be launched, and the interest rates for newly issued residential mortgage loans will have a large downward space. "this is the key to reversing expectations for the property market."

chen wenjing, director of market research at china index academy, said that my country's next round of reserve requirement ratio cuts and interest rate cuts may be implemented faster, further reducing the financing costs of enterprises and residents. for the real estate market, the lpr for more than 5 years is expected to be further reduced, and the cost of buying houses for residents will also fall accordingly.

lpr quotes refer more to short-term policy interest rates

previously, due to the imperfect transmission mechanism from short-term policy interest rates to credit market interest rates, lpr mainly referred to the medium-term policy interest rate at the time, namely the one-year medium-term lending facility (mlf) rate, and was reported after comprehensively considering market factors such as capital cost and risk premium.

as the interest rate marketization reform continues to deepen, the pricing ability of commercial banks has been further improved, the market-based interest rate formation mechanism has become more effective, and the reference role of the mlf interest rate on the lpr has declined. at the same time, the lpr quoted by some quoting banks is too high, which is significantly different from the loan interest rates of their best customers, which has affected the quotation quality to a certain extent.

since the beginning of this year, the central bank has continuously improved the market-oriented interest rate regulation mechanism, explicitly stating that the 7-day reverse repurchase operation rate in the open market is the policy rate. at the same time, it has adjusted the mlf renewal time to the monthly lpr release time, continuously diluting the policy rate color of the mlf rate.

at present, the interest rate transmission relationship from short to long is gradually being straightened out. the central bank made it clear in the "china monetary policy implementation report for the second quarter of 2024" that the next step will be to continue to reform and improve the lpr, focus on improving the quality of lpr quotations, better play the role of the interest rate self-discipline mechanism, maintain a rational and orderly competition order, smooth the interest rate transmission channel, and create a good monetary and financial environment for economic recovery and high-quality development.