On July 22, the People's Bank of China authorized the National Interbank Funding Center to announce that the one-year loan market quoted interest rate (LPR) was 3.35%, and the 5-year and above LPR was 3.85%, both of which were 10 basis points lower than the previous period. This is the second adjustment of LPR within the year. In February of this year, the 5-year and above LPR decreased by 25 basis points, and since the beginning of this year, the 5-year and above LPR has cumulatively decreased by 35 basis points. If calculated based on a commercial loan limit of 1 million yuan, a 30-year loan, and equal principal and interest repayment method, the LPR will decrease by 10 basis points this time, and the monthly payment will decrease by 57.3 yuan, resulting in a cumulative decrease of 21000 yuan in monthly payment over 30 years. Analysts say that a decrease in LPR over 5 years is beneficial for reducing the interest burden on mortgage borrowers and promoting consumption. On May 17th, the People's Bank of China lifted the lower limit of the national level housing loan interest rate policy, and the newly issued housing loan interest rates significantly decreased. In June, the average new mortgage interest rate nationwide was 3.45%, a year-on-year decrease of 66 basis points and a month on month decrease of 17 basis points, at the lowest level in history. Since the beginning of this year, the cumulative LPR for loans over 5 years has decreased by 35 basis points. Existing mortgage borrowers will also enjoy the benefits of the LPR decrease from the next repricing date, reducing their interest burden and enhancing their consumption ability. Based on a mortgage principal of 1 million yuan, a 30-year term, and equal principal and interest, it is estimated that approximately 200 yuan in interest expenses can be saved per month, and the total interest savings can exceed 70000 yuan. In recent years, the financial support for the real economy has been continuously increasing, and the decrease in loan interest rates has been greater than the decrease in LPR, especially for the highest quality customer loan interest rates, resulting in a certain deviation between LPR quotes and the highest quality customer loan interest rates. The Governor of the People's Bank of China, Pan Gongsheng, proposed at the 2024 Lujiazui Forum that in response to the significant deviation of some quoted interest rates from the actual highest quality customer interest rates, the focus should be on improving the quality of LPR quotes to more accurately reflect the level of interest rates in the loan market. Analysts believe that the decrease in LPR this time also reflects that some quoting banks have corrected the deviation between their quotes and the highest quality customer loan interest rates by lowering their quotes, and the quality of LPR quotes continues to improve. After the rectification of illegal manual interest payments, the cost of bank funds has steadily decreased, and the impact of the decrease in LPR on the bank's net interest margin is controllable Analysts say that the decrease in LPR is partly attributed to the effect of regulatory authorities rectifying illegal manual interest payments in the early stage, which has led to a reduction in the cost of bank funds ahead of schedule. At the same time, the People's Bank of China (hereinafter referred to as the "central bank") issued a public market business announcement stating that in order to optimize the operation mechanism of the open market, the 7-day reverse repurchase operation in the open market will be adjusted to a fixed interest rate and quantity bidding from today. At the same time, in order to further strengthen countercyclical regulation and increase financial support for the real economy, the interest rate for 7-day reverse repo operations in the open market will be adjusted from 1.8% to 1.7% starting today. This is the first adjustment of the open market 7-day repurchase operation interest rate since August 2023. Experts say that adjusting the 7-day reverse repurchase operation to a fixed interest rate and quantity bidding, and clearly indicating the open market operation interest rate, is conducive to strengthening the policy attributes of the 7-day reverse repurchase rate. The 10 basis point reduction in the 7-day reverse repo operation interest rate is conducive to increasing financial support for the real economy, but it does not mean that the downward space for long-term bond yields has opened up. What signals are released by experts interpreting the second decline in LPR this year? Experts say that LPR is the main reference benchmark for loan interest rate pricing. The decrease in LPR sends a policy signal to stabilize growth and promote development, which is conducive to stabilizing market expectations, further stabilizing and reducing financing costs for the real economy, stimulating credit demand, and promoting corporate investment. 1. Further reduce the cost of the real economy. Wen Bin, Chief Economist of China Minsheng Bank, stated that the decline in LPR is conducive to further reducing the cost of the real economy, encouraging investment and consumption, expanding effective demand, and helping macroeconomic operations operate within a reasonable range. After the decrease in LPR, it will further reduce the cost of housing loans, which will play a positive role in further consolidating the real estate market, promoting the recovery of the real estate market, and maintaining the stable operation of the real estate market. 2. The interest rate of existing housing loans will be adjusted accordingly after the repricing date. This year, the central bank has lifted the lower limit of the national level housing loan interest rate policy, and the interest rates for newly issued housing loans have significantly decreased. In June, the average new mortgage interest rate nationwide was 3.45%, a year-on-year decrease of 66 basis points and a month on month decrease of 17 basis points, at the lowest level in history. Since the beginning of this year, the cumulative LPR for loans over 5 years has decreased by 35 basis points. Existing mortgage borrowers will also enjoy the benefits of the LPR decrease from the next repricing date. 3. The downward trend in interest rates for this 7-day reverse repo operation does not mean that there is room for further decline in long-term bond yields. Authoritative experts have stated that the reduction in policy interest rates is expected to be gradually transmitted to the real economy through the financial market, promoting the reduction of comprehensive financing costs, consolidating the positive trend of economic recovery, and breaking the negative cycle of declining long-term bond yields and weakened expectations. The central bank has lowered the 7-day reverse repo operation interest rate this time, aiming to increase the intensity of countercyclical adjustment and smooth out short-term economic fluctuations; The yield of medium and long-term bonds reflects more of the long-term economic trend and should be evaluated from a cross cyclical perspective. Industry insiders analyze that the continuous decline in the long-term bond interest rate this round already includes expectations for this interest rate cut, and even has a significant overshoot. It does not mean that it is necessary to follow the downward trend of the 7-day reverse repo operation interest rate and continue to decline. In fact, the current long-term bond interest rates are too low, and foreign media are generally concerned about the potential risks involved; Low long-term bond interest rates can also easily trigger self realization of weak expectations, while the fundamentals of China's economy are long-term positive. The central bank's interest rate cut this time will help support the economic recovery and boost medium - to long-term economic expectations, as well as drive the rebound of long-term interest rates. Experts predict that in the future, the central bank will also take comprehensive measures, borrow and sell treasury bond when necessary, timely correct and block the accumulation of bond market risk, and maintain the normal upward sloping yield curve. The central bank has the determination and measures to stabilize market expectations. (New Society)