Core Viewpoint - The Loan Prime Rate (LPR) in China remains unchanged for both the 1-year and 5-year terms at 3.0% and 3.5% respectively, reflecting a stable monetary policy environment [1][2] Group 1: Monetary Policy and LPR Stability - The People's Bank of China has established the 7-day reverse repurchase rate as a new pricing anchor for LPR, which has led to a stable LPR following a previous decrease in May [1] - Economic data from May showed improvements in both supply and demand, with consumption being a highlight, suggesting a stable economic outlook for June [2] - The Federal Reserve's decision to maintain its interest rate range at 4.25% to 4.50% indicates that domestic monetary easing may face constraints [2] Group 2: Future Expectations and Economic Impact - Analysts predict that LPR may remain stable in the short term, but there could be room for a decrease later in the year to stimulate internal demand and support the real estate market [3] - The focus may shift from merely lowering LPR to reducing overall financing costs, including non-interest expenses, to support economic growth [4] - The ongoing pressure on bank interest margins suggests that future monetary policy will need to balance various economic factors while promoting lower financing costs for businesses and consumers [2][3]

Group 1 - The People's Bank of China has lowered the one-year and five-year LPR by 10 basis points to 3.00% and 3.50% respectively, following previous monetary policy adjustments [1][2] - The reduction in LPR is part of a broader monetary policy strategy that includes a 0.5 percentage point cut in the reserve requirement ratio, which is expected to release approximately 1 trillion yuan in long-term liquidity [2] - The five-year LPR has decreased by a total of 115 basis points from its peak in 2020, marking a new low since the marketization of housing loan pricing [2][4] Group 2 - Major banks have responded to the LPR reduction by lowering various deposit rates, which is expected to decrease the cost of home loans for consumers [4] - The adjustment in LPR will lead to a reduction in both new and existing mortgage rates, alleviating the repayment pressure on homeowners [4][5] - The recent cut in public housing fund loan rates by 0.25 percentage points may create more room for further adjustments in commercial housing loan rates [5]

Core Viewpoint - The People's Bank of China (PBOC) announced a 10 basis points reduction in the Loan Prime Rate (LPR) on May 20, marking the first interest rate cut of the year, which is expected to lower the overall financing costs for the real economy and stabilize the net interest margin of commercial banks [1][9][10]. Summary by Sections Interest Rate Changes - The LPR was reduced from 3.0% to 2.9% for first-time homebuyers, which translates to a total interest savings of approximately 38,600 yuan over a 30-year mortgage for a loan of 2 million yuan [1][3]. - Multiple banks, including China Construction Bank, China Merchants Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China, have announced reductions in deposit rates, with the most significant cuts being 15 basis points for various term deposits [5][6][7][8]. Impact on Financing Costs - The reduction in LPR and deposit rates is expected to further decrease the comprehensive financing costs for the real economy, thereby reinforcing the economic fundamentals [3][10]. - The PBOC's adjustment of the 7-day reverse repurchase rate from 1.50% to 1.40% is anticipated to influence various market rates, including the LPR and deposit rates, promoting consumption and investment [9][10]. Banking Sector Response - The banking sector is responding to the PBOC's policy changes, with state-owned banks typically leading the way in adjusting deposit rates, followed by joint-stock and smaller banks [10]. - The net interest margin of commercial banks has been under pressure, declining to 1.43% in the first quarter of this year, which is below the regulatory acceptable level of 1.80% [10].

Core Viewpoint - The People's Bank of China (PBOC) has lowered the 7-day reverse repurchase rate from 1.50% to 1.40%, aiming to stabilize commercial banks' net interest margins and reduce the comprehensive financing costs for the real economy, thereby supporting economic fundamentals [1][2]. Group 1: Monetary Policy Actions - On May 8, 2025, the PBOC conducted a reverse repurchase operation of 158.6 billion yuan at a fixed rate, resulting in a net injection of 158.6 billion yuan as there were no reverse repos maturing that day [1]. - The operation rate for the 14-day reverse repurchase and temporary repos will continue to be determined based on the 7-day reverse repurchase operation rate, with the adjustment range remaining unchanged [2]. Group 2: Economic Implications - The rate cut is expected to lead to a decrease in the Loan Prime Rate (LPR) by approximately 0.1 percentage points, which will help lower the financing costs for the real sector and enhance financial support for the economy [2][3]. - The current high actual interest rates in China necessitate a reduction in the LPR to improve investment and consumption sentiment, thereby supporting the development of the real economy [3].

Core Viewpoint - The liquidity in the market has been tight since the beginning of the year, with short-term interest rates rising without immediate transmission to long-term rates due to several factors, including increased demand for long-term bonds and changing market expectations regarding interest rate cuts [1][2]. Group 1: Initial Conditions for Short-Term to Long-Term Rate Transmission - The initial lack of transmission from short-term to long-term interest rates is attributed to three main factors: increased demand for long-term bonds due to the "opening red" period and deposit self-discipline, heightened concerns over tariffs leading to increased risk premiums, and a stronger "substitution effect" of long-term bonds over short-term bonds [4][5][6]. Group 2: Recent Developments in Rate Transmission - Since February 6, the pressure from short-term rates has begun to transmit to long-term rates, with the 10-year government bond yield rising from 1.60% to 1.76%. This change is driven by three mechanisms: a decrease in the pulse demand for long-term bonds, a marginal correction in interest rate cut expectations, and an increase in the opportunity cost of long-term bond investments [8][9][10]. Group 3: Future Outlook for Long-Term Bond Yields - The tightening liquidity environment may lead to a return to a more stable long-term bond yield, with expectations that the liquidity environment will shift back to a more accommodative stance. The future trajectory will depend on the extent of fiscal stimulus and the strength of economic recovery [12].