What signal does the central bank’s "interest rate cut" exceed expectations?
The much-watched LPR came in February, and this time, it still exceeded expectations.

On the morning of 20th, the loan market quotation rate (LPR) was released in February: the one-year LPR was 3.45%, which was the same as the previous period; The LPR over five years was 3.95%, which was 4.2% last time, down by 25 basis points. The five-year range significantly exceeded market expectations, the biggest adjustment since the reform of LPR formation mechanism in August 2019.
What does this mean?
Send a signal to promote the stable development of the real estate market.
For this month’s LPR, Dong Ximiao, the chief researcher of Zhaolian, said: The LPR over the five-year period dropped by 25 basis points, far exceeding market expectations, setting the biggest decline since the reform of the LPR formation mechanism in 2019. LPR with a term of more than 5 years is the pricing benchmark for individual housing loans and medium and long-term loans of enterprises and institutions. The sharp and unexpected decline of LPR over five years first sends a strong signal to boost residents’ housing consumption and promote the stable development of the real estate market. After the LPR decreases for more than five years, the interest expense of residents’ mortgage will be reduced, which will help boost residents’ willingness and ability to consume housing. For the existing mortgage, the mortgage interest rate will be adjusted after the repricing date; For new mortgages, it is expected that most banks will keep the increase unchanged on the basis of this LPR, thus reducing the real interest rate of new mortgages.
Chang Yang, chief analyst of the policy team of Zhongtai Securities Research Institute, also believes that since the five-year LPR has a relatively strong correlation with the real estate market, from the early stage, lowering the five-year LPR interest rate is also a part of the combination of demand-side policies in the real estate market. At this stage, the five-year LPR interest rate is greatly reduced by 25 BP, and more policy measures have been intensively introduced around the real estate market recently, which fully reflects the policy intention of interest rate policy to participate in activating the real estate market and promoting a virtuous circle of the real estate market.
Boost confidence in economic recovery
The industry believes that the downward adjustment of LPR at the beginning of 2024 will play an important role in boosting confidence in economic recovery.
The working meeting of the central bank held on January 4 this year once again proposed to reduce financing costs. On January 24, Xuan Changneng, deputy governor of the central bank, said at the press conference of the State Council Office that the interest rate level should be reasonably grasped, and the actual interest rate level should be grasped in a forward-looking manner in combination with the judgment of the future price change trend, so as to keep up with the requirements of realizing the potential economic growth rate.
Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank, believes that the reduction of domestic LPR interest rates and the increase of financial support for the real economy will help stimulate the vitality of the real economy, help the real estate recovery, and accelerate the recovery of consumption and domestic demand. He pointed out that although the one-year LPR interest rate remained stable, the central bank promoted financial institutions to tap the potential of interest rate marketization reform through structural tools, and reduced the financing costs of weak links and key emerging areas in the real economy such as small micro, agriculture, rural areas and farmers.
Dong Ximiao said: The sharp decline in LPR over five years will reduce the medium and long-term loan interest rates of enterprises and institutions, and further stimulate the medium and long-term financing needs of enterprises and institutions. This will be conducive to major national projects and infrastructure construction with a relatively high proportion of long-term loans, and also help to reduce the pressure on local debt interest payments.
Both deposit interest rates and loan interest rates may be further lowered.
Looking forward to the next stage, many analysts and people in the banking industry in Zhejiang believe that there is still room for lowering both the loan interest rate and the deposit interest rate.
The central bank’s monetary policy implementation report in the fourth quarter of 2023 has repeatedly mentioned that it is necessary to continue to promote the implementation of the market-oriented adjustment mechanism of deposit interest rates, urge banks to continuously improve the pricing mechanism of deposit and loan interest rates, and continue to promote the marketization of deposit interest rates to drive down the overall interest rate level.
At the beginning of February this year, the monetary policy implementation report for the fourth quarter of 2023 issued by the central bank mentioned that the interest rate marketization reform should be continuously deepened, the formation mechanism of quoted interest rate in the loan market should be further improved, the market-oriented adjustment mechanism of deposit interest rate should be brought into play, and the comprehensive financing cost of society should be steadily reduced.
TF Securities said that the central bank may continue to promote the reform of deposit interest rate, effectively reduce the cost of banks’ liabilities, so as to ease the pressure on banks’ net interest margin. Although the deposit interest rate of major banks has declined, the average cost ratio of corporate time deposits has increased slightly compared with that of 2021, and the overlapping deposits have become regular (the proportion of demand deposits has decreased from 34.7% at the end of 2021 to 32.7% in 2022), and the average cost ratio of sample bank deposits has not decreased, but increased. Under such circumstances, continuing to promote the marketization of deposit interest rate is a necessary measure to ease the pressure of bank net interest margin.
Dong Ximiao predicted that there is still a lot of room for China’s monetary policy to be implemented. It is expected that in the next stage, the People’s Bank of China will continue to lower the policy interest rate, guide banks to lower the deposit interest rate, promote the continuous downward trend of LPR, further reduce the financing cost of the real economy, and create a more suitable monetary and financial environment for the accelerated recovery and sustained recovery of the economy. In other words, whether it is policy interest rate or market interest rate, whether it is deposit interest rate or loan interest rate, there is still room and possibility for the next step to fall.
According to the tide news



























