Is a rate cut possible?
CITIC Securities believes that the LPR quotation mechanism may see improvements, and there is a possibility of a short-term reduction in LPR quotations, creating more favorable policy conditions for credit recovery. With the advancement of LPR reform, it is expected that the potential for loan issuance will be further unleashed. Recent financial data reflects the need for real economy stimulation, and there is room for improvement in the loan pricing mechanism reform. From overseas experience, there are multiple ways for the formation of LPR rates, and the improvement of China's LPR method may enhance policy efficiency and marketization. After the central bank guides the decoupling of LPR quotations from MLF rates, the space for reducing LPR has opened up, and reducing LPR can improve the quality of LPR quotations and promote economic growth
Drawing on overseas experience and recent policy statements, we believe that the LPR pricing mechanism may undergo improvements to enhance policy efficiency and market orientation. In the short term, there is also a possibility of a reduction in LPR pricing, creating more favorable policy conditions for credit recovery. With the advancement of LPR reforms and the continuous decline in financing costs, we expect the potential for loan issuance to be further unleashed. Although short-term growth may not rebound significantly, overall structural optimization will enhance the quality and efficiency of financial services.
Credit Data Reflects the Need to Boost Financing Demand
Recent financial data indicates that real demand still needs to be boosted, and apart from common stimulus policies, there is room for further improvement in the loan pricing mechanism.
Comparison of Overseas Loan Pricing Models
① Currently, there are three typical LPR rate formation mechanisms internationally, each with its own advantages and disadvantages, with the United States and Japan being particularly noteworthy.
② United States: LPR is linked to the federal funds target rate, but its application scope is gradually narrowing, mainly used for pricing small loans with higher difficulty.
③ Japan: Overall pricing is more market-oriented and autonomous.
Speculations on Improving China's LPR
① The central bank intends to enhance the status of reverse repurchase rates as policy rates, weaken the color of MLF policy rates, and gradually streamline the interest rate transmission relationship from short to long.
② In the future, the pricing anchor for LPR may shift from MLF rates to 7-day reverse repurchase rates, or it may refer to the DR series rates for loan pricing. Regardless of the specific method, the overall trend is to enhance policy efficiency and the market orientation of LPR.
Increased Probability of LPR Rate Cuts
① The central bank is guiding the LPR pricing to decouple from MLF rates in form, opening up room for LPR rate cuts.
② The proportion of LPR rate cuts in loan rates is increasing, and timely reductions in LPR can improve the quality of LPR pricing.
③ Based on existing data, loan rates are relatively high compared to bond financing rates. By reducing LPR rates, loan costs can be guided downward to stimulate financing demand and promote economic growth.
Conclusion and Outlook:
Drawing on overseas experience and recent policy statements, we believe that the LPR pricing mechanism may undergo improvements to enhance policy efficiency and market orientation, with a possible reduction in LPR pricing in the short term. As LPR reforms progress and financing costs continue to decline, we expect the potential for loan issuance to be further unleashed. Although short-term growth may not rebound significantly, overall structural optimization will enhance the quality and efficiency of financial services.
Article Author: Mingming Team of CITIC Securities (SAC License No.: S1010517100001), Source: CITIC Securities Research, Original Title: "Bond Market Enlightenment | Is a Rate Cut Possible?" Some content has been edited out by Wall Street News