The first drop this year! Both 5-year and 1-year LPR rates have been cut by 10 basis points

Source: Wall Street News

The LPR quote was released in May, with both the 5-year and 1-year interest rates lowered by 10 basis points. This is the first time that LPR has been reduced this year, which will further reduce the financing costs of enterprises and residents, boost market confidence, and support the stable growth of the real economy.

On Tuesday, May 20, the People's Bank of China authorized the National Interbank Offering Center to announce that the loan market quotation rate (LPR) on May 20, 2025 is: the 1-year LPR is 3.0%, and the LPR for more than 5 years is 3.5%.

Considering that the policy interest rate has been lowered on May 8, the LPR cut by 10 basis points is in line with market expectations. Earlier today, China's four major banks, China Merchants Bank and Bank of Communications officially announced the cuts in deposit interest rates to a maximum of 25 basis points. For depositors, a new round of deposit interest rate cuts means that the opportunity cost of holding cash will be further reduced, which may drive more funds to switch to investment channels such as stock markets, bond markets and wealth management products, bringing new liquidity to the capital market.

According to the media Shanghai Securities News, Wang Qing, chief macro analyst of Oriental Financial Cheng, said that guiding the downward trend of LPR by lowering policy interest rates will drive a sharp drop in loan interest rates for enterprises and residents, reducing the financing costs of the real economy. This helps stimulate the endogenous financing needs of enterprises and residents, and is a key move to expand investment and promote consumption at this stage.

Wang Qing believes that the downward trend of one-year LPR will lead to a reduction in deposit interest rates. According to the market-oriented adjustment mechanism of deposit interest rates, deposit interest rates are linked to the 1-year LPR and the 10-year Treasury bond yield. It is expected that commercial banks will lower their deposit listing rates soon.

Media pointed out that my country's loan interest rates continue to be in a downward channel. According to the central bank's disclosure, in April, the weighted average interest rate of newly issued loans by enterprises was about 3.2%, about 50 basis points lower than the same period last year; the weighted average interest rate of newly issued loans by individual housing was about 3.1%, about 55 basis points lower than the same period last year. The downward trend of LPR is expected to further boost residents' willingness and ability to consume housing and promote the release of housing consumption demand.

Dong Ximiao, chief researcher of China Merchants Union, said that LPRs of more than 5 years are the pricing "anchor" of personal housing loan interest rates: "After the LPR declines, coupled with the reduction of provident fund loan interest rates, residents' housing consumption expenditure will be further reduced."

According to Yan Yuejin, deputy director of Shanghai E-House Real Estate Research Institute, the monthly payment amount of personal mortgage loans with a loan of 1 million yuan, 30-year, and equal principal and interest will be reduced by 54 yuan, and the total repayment amount (principal + interest) will be reduced by 19,000 yuan.

Dong Ximiao said: "However, it should be noted that the decline in LPR does not directly mean that the interest rate of new mortgages will definitely decline." The actual mortgage interest rate consists of LPR and points. The addition points themselves are comprehensive considerations by banks based on their own assets and liabilities, capital costs, market competition and other factors.

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