What signal does the People’s Bank of China send with this “interest rate cut”?
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The Spring Festival holiday has just ended, and our country has ushered in its first “interest rate cut” in 2024. On February 20, the People’s Bank of China authorized the National Interbank Funding Center to announce that the 1-year LPR was 3.45%, unchanged; the 5-year and above LPR was 3.95%, down 25 basis points from the previous value.
What signals does the 5-year loan prime rate (LPR) drop significantly? How does it affect your and my “wallet”?
Clear goals for stabilizing growth and promoting development
Xiao Lisheng, director of the Global Macroeconomic Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, said that the reduction of the 5-year LPR is the largest since my country’s LPR formation mechanism reform in August 2019. “The LPR is implemented asymmetrically, and the 5-year LPR is The above LPR decline exceeded market expectations.”
Wen Bin, chief economist of China Minsheng Bank, said that the long-term LPR has fallen significantly this time, and the interest rate difference between the one-year and five-year or longer LPR has narrowed to 0.5 percentage points, which is conducive to improving the coordination of interest rate policies. Improve the efficiency of financial resource allocation.
Zeng Gang, director of the Shanghai Finance and Development Laboratory, commented that this LPR reduction is more “targeted”. The 1-year LPR remains unchanged, which will help alleviate the downward pressure on bank interest margins and create more room for the decline of the 5-year and above LPR.
Reduce interest burden on home buyers
LPR with a term of more than 5 years is the pricing “anchor” for most personal housing loan interest rates. Calculated based on a commercial loan of 1 million yuan, a term of 30 years, and equal principal and interest. Without considering points, the reduction of LPR for more than 5 years will save home buyers more than 52,000 yuan in interest; the equal principal method will save interest by nearly 38,000 yuan. Ten thousand yuan.
Dong Ximiao, chief researcher of China Merchants Union, pointed out that after the LPR of more than 5 years decreases, residents’ mortgage interest payments will decrease. For existing mortgages, the mortgage interest rate will be adjusted after the re-pricing date; for new mortgages, it is expected that most banks will keep the point increase unchanged on the basis of this LPR, thus reducing the actual interest rate of new mortgages. The reporter learned that many banks in Shanghai simultaneously updated the mortgage interest rates on the same day, with the interest rate for first-home loans raised to 3.85% and the interest rate for second-home loans ranging from 4.15% to 4.25%.
Help boost residents’ willingness to consume
This LPR reduction also reflects the continuity of the policy. Since the LPR reform in August 2019, the LPR over 5 years has fallen 8 times, a total of 90 basis points; the 1-year LPR has dropped 9 times, a drop of 80 basis points. Experts believe that with the adjustment of existing mortgage interest rates and the reduction of residents’ interest payments, it will also be conducive to the further recovery of residents’ consumption.
Reduce corporate financing costs and improve the credit environment
The significant drop in LPR with a maturity of more than 5 years will also reduce the interest rates on medium- and long-term loans to enterprises (institutions) and further stimulate the demand for medium- and long-term loans from enterprises (institutions). Taking manufacturing companies as an example, “After interest rates are cut, it will not only enhance the company’s ability and willingness to innovate in science and technology, but also help accelerate the development of new productivity.” Xiao Lisheng said.
In addition, lowering interest rates will also be beneficial to major national projects and infrastructure construction with a high proportion of long-term loans, and will also help reduce the pressure on local debt interest payments.
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