On October 21, the People's Bank of China authorized the National Interbank Funding Center to announce that the loan market quotation rate (LPR) in October 2024 is 3.1% for 1-year term and 3.6% for 5-year term and above. Both varieties have decreased by 25 basis points compared to last month. Experts say that the quotations for both 1-year and 5-year and above varieties have decreased by 25 basis points, which is a significant decrease. It is expected to drive down loan interest rates for enterprises and residents, promote stable and moderate reduction in social financing costs, expand macroeconomic demand, support reasonable price recovery, and drive stable growth of the real economy. Pan Gongsheng, President of the People's Bank of China, "predicted" that LPR would continue to decline on the 18th. This is also the third time this year that LPR has declined, and the largest decline. 25 basis points is indeed slightly larger than the market's estimate based on the Fed's interest rate cuts. On the one hand, 'the external environment is becoming more complex and severe, and the foundation for economic recovery still needs to be consolidated.' Objectively, it is necessary to maintain a certain level of monetary policy in accordance with the requirements of the Central Politburo meeting. On the other hand, China's interest rate cuts will not be as frequent as other economies, so there needs to be sufficient intensity at once. In addition, we can cooperate with the adjustment of new mortgage interest rates and existing mortgage interest rates to promote the stabilization and recovery of the real estate market Pang Ming, Chief Economist of JLL Greater China, said. On October 18th, commercial banks announced a reduction in deposit interest rates. It is worth noting that currently, commercial banks are accelerating the bulk adjustment of existing housing loan interest rates. This also means that after the LPR reduction on October 21, the interest rates for existing and new housing loans will be further lowered, which will more effectively reduce the burden of residents' housing consumption and promote the stabilization of the real estate market. The decrease in LPR will greatly reduce the interest burden on mortgage borrowers and effectively promote consumption. Since the beginning of this year, the cumulative decline of LPR over 5 years has been 60 basis points, which is a significant benefit for both new and old housing loans. For those who are about to take out a house loan, the interest cost is lower. For existing mortgage borrowers, the 0.6 percentage point decrease in LPR since the beginning of this year, combined with the average decrease of about 0.5 percentage points in the unified batch adjustment of existing mortgage interest rates by various commercial banks on October 25th, may result in a decrease of more than 1 percentage point in mortgage interest rates this year. Looking ahead, industry insiders believe that LPR quotes may remain stable within the year. According to Wang Qing, Chief Macro Analyst of Dongfang Jincheng, on the one hand, the significant reduction in policy interest rates in September will lead to a policy effectiveness observation period in the fourth quarter, which means that the pricing basis for LPR quotations will remain stable. On the other hand, the current net interest margin of banks is at a historical low, which will constrain the motivation of quoting banks to continue compressing LPR quotes. We judge that the focus of the fourth quarter is to guide the interest rates of corporate and residential loans, especially newly issued residential housing loans, to significantly decline after the LPR quotation was lowered in October. The next step is to focus on promoting the real estate market to stop falling and stabilize, boosting economic growth momentum, and leading to a moderate rebound in animal price levels. There may still be some room for LPR quotes to be lowered in 2025 Wang Qing pointed out. (New Society)
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