Event: on April 20, 2022, the national interbank lending center announced the new LPR quotation: 3.7% for 1-year varieties and 4.6% for varieties over 5 years, both unchanged from the previous month.
The specific interpretation is as follows:
In April, the standard reduction was implemented, which did not drive the reduction of LPR quotation in the current month, and there is a possibility of reduction in the second quarter. In April, the 1-year and 5-year LPR quotations remained unchanged for three consecutive months for two main reasons: first, the MLF interest rate remained unchanged in that month, which means that the pricing basis of LPR quotation has not changed; Second, in April, the central bank implemented the "comprehensive plus targeted RRR reduction", with a range of 0.25 percentage points respectively, saving 6.5 billion capital costs for banks. According to the law since the reform of LPR quotation in 2019, two RRR reductions of 0.5 percentage points will trigger one RRR reduction. For example, after the two RRR reductions in July and December of 2021, the 1-year LPR quotation in December was reduced by 5 basis points, and a similar situation occurred in 2019. The rate of this RRR reduction is less than 0.5 percentage points - after the comprehensive and targeted RRR reduction, the bank deposit reserve ratio has decreased by 0.3 percentage points as a whole - and the cumulative number is only once in a row. Therefore, it is no accident that the price of LPR in April is not consistent. It can be seen that after the national standing committee decided to reduce the standard on April 13, the interest rate swap (IRS) linked to one-year LPR on April 14 was 3.71%, up one basis point from the previous value, which was basically the same as the present value of 3.7% LPR quotation. This indicates that the market also expects that the LPR quotation will not be reduced in April.
It should be noted that the central bank announced on April 18 that 600 billion yuan had been turned over as of mid April, mainly for tax rebates and transfer payments to local governments, which is equivalent to 600 billion yuan of base currency, which is basically equivalent to the overall reduction of reserve requirement by 0.25 percentage points. In this way, the standard reduction in April reached about 0.55 percentage points, but the replacement object was adjusted from the previous MLF to "turned in profits". However, the profit handed over by the central bank is equivalent to releasing the base currency through financial channels, which can not directly save the capital cost effect on banks, so it has a relatively small impact on LPR quotation.
It is reported that recently, the market self-discipline pricing mechanism held a meeting to encourage the floating ceiling of deposit interest rates of small and medium-sized banks to be lowered by about 10 basis points. This requirement is not mandatory, but the bank making the adjustment may be beneficial to its macro Prudential assessment (MPA). First of all, the interest rate of deposits in small and medium-sized banks will be significantly reduced by about 65% to about 70%. However, this requirement is not mandatory, so the downward trend of deposit interest rates of some small and medium-sized banks has not been transmitted to the LPR quotation end for the time being.
According to the current macroeconomic situation under the fluctuation of the epidemic and the operation of the real estate market, it is possible to implement another comprehensive RRR reduction in the second quarter, and it is not ruled out that the MLF interest rate may be reduced slightly. In addition, there is a downward trend in the bank deposit interest rate, and the money market interest rate will also remain low. We judge that there is a high probability that the LPR quotation will be reduced by 10 to 15 basis points in the next May and June.
The LPR quotation remained unchanged in April, and the enterprise loan interest rate and residential mortgage interest rate will continue to decline in the second quarter. The data shows that driven by the continuous reduction of one-year LPR quotation in December 2021 and January 2022, the enterprise loan interest rate has entered a rapid downward process. In the first quarter of 2022, the weighted average interest rate of corporate loans fell to about 4.4%, down 0.21 percentage points from 2021, while the interest rate of newly issued corporate loans in March further fell to 4.37%, a new low in more than 40 years of reform and opening up. Recently, the epidemic situation in Shanghai, Jilin and other places has been repeated and spread throughout the country. The downward pressure on the macro economy has increased. In addition, the high PPI has further increased the operating pressure of downstream small and medium-sized enterprises, and the urgency of reducing enterprise loan interest rates has increased. Therefore, we judge that although the LPR quotation remains unchanged in April, the enterprise loan interest rate will continue to decline in the short term. The main driving forces include: first, financial profit making entities. The recent "comprehensive plus targeted RRR reduction" and the reduction of the floating upper limit of deposit interest rate of small and medium-sized banks will reduce the cost of bank rhythm to varying degrees. It is expected that under the guidance of supervision, this part of the cost reduction will be fully transmitted to the real economy and promote banks to reduce enterprise loan interest rates.
Second, the central bank strengthened the implementation of structural monetary policy tools, provided more low-cost funds to banks through refinancing, and then guided banks to extend credit to key areas such as small and micro enterprises, green development and scientific and technological innovation at low interest rates. We note that the central bank announced on April 18 that "we will increase the support of structural monetary policy tools such as refinancing, make good use of small refinancing to support agriculture and two carbon reduction tools, accelerate the investment of 100 billion refinancing in the field of transportation and logistics, and create 200 billion yuan of scientific and technological innovation refinancing and 40 billion yuan of inclusive pension refinancing, which is expected to increase the loan investment of financial institutions by 1 trillion yuan."
In terms of residential mortgage loans, although the five-year LPR quotation in April remains unchanged, the recent downward trend of bank level interest rates will also continue. The central bank disclosed that since March, more than 100 cities have independently lowered mortgage interest rates, with an average range of 20 to 60 basis points. We judge that recently, through the central bank's "23" and other policies, the regulators continue to strengthen the recovery of real estate finance, including "reasonably determining the minimum down payment proportion of commercial personal housing loans and the minimum loan interest rate requirements". In the context of the weakening property market, this means that more city banks will reduce the mortgage interest rate according to the changes of market supply and demand and their own operation. We judge that if the interest rate and reserve requirement cuts continue in the second quarter, the five-year LPR quotation will be lowered simultaneously with the one-year LPR quotation, and the improvement of residents' housing loan conditions is expected to help the property market stop falling and stabilize around the middle of the year.
