Cut Interest Rate by 10 Basis Points! Will Savings Decrease?

This morning, the central bank announced a significant piece of good news: the Loan Prime Rate (LPR) related to loans was reduced by 10 basis points.

This time, it's a symmetrical cut, meaning both the one-year and five-year terms were lowered by the same amount, 10 basis points.

With the recent reductions in deposit and loan interest rates, there is a lot of anticipation about the future effects.

Will savings decrease after the interest rate cut?

Will the number of homebuyers increase?

Can it effectively stimulate consumption?

These seem to have become the three soul-searching questions.

In fact, today's LPR cut was not unexpected, as there had been signs leading up to it.

Recently, the central bank's reverse repo rate cuts and the Medium-term Lending Facility (MLF) rate cuts have attracted widespread attention.

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Reverse repo is a short-term lending operation conducted by the central bank to maintain market liquidity.

The MLF rate cut is a monetary policy measure taken by the central bank to stimulate economic development by lowering loan interest rates.

Although these two policies are different, they are both closely related to monetary policy.

Since the beginning of June, the reverse repo rate has already decreased, and subsequently, the MLF rate has also decreased, so experienced investors have been able to predict that the LPR would follow suit.

These announcements from the central bank should be good news for the investment market, but are they good for the overall economy?

As participants in the financial market, many people are concerned about how these policies will affect their assets and savings.

Generally speaking, reverse repo, MLF, and LPR rate cuts will affect the cost of funds and loan interest rates of banks.

The lower the cost of funds, the lower the borrowing cost, which in turn promotes borrowing demand and drives economic development.

This can have a positive effect on the economy.

However, for the general public who prefer to save money, it may not be good news.

Because when the bank's loan interest rates are lowered, it is inevitable that deposit interest rates will also be lowered to ensure a certain interest spread.

We have already seen this from the various banks that have reduced deposit interest rates.

However, from last year to this year, bank deposit interest rates have been lowered several times, but savings have not decreased; instead, they have continued to increase.

In May of this year, household savings increased by another 536.4 billion yuan.

Therefore, this interest rate cut is estimated not to lead to a significant outflow of savings.

For homebuyers, if the LPR rate decreases, it will have a certain impact.

Banks will lower loan interest rates, thereby reducing the repayment pressure on homebuyers, which is good news for those preparing to buy a house.

However, the development of the real estate market is not only affected by interest rates and other policies but also by factors such as housing prices, economic conditions, and policy environments.

If housing prices are too high, even with lower interest rates, potential buyers may still be deterred by the high cost.

And if the economic situation is poor, people's willingness to buy houses will not increase.

After this interest rate cut, we calculated that a loan of one million yuan to be repaid over 30 years would only save 21,000 yuan in interest.

It's hard to imagine someone buying a house just to save 21,000 yuan over 30 years.

For homebuyers, whether to buy a house is not about this small amount of interest, but about the overall level of housing prices.

Under normal circumstances, the central bank's interest rate cuts will have a certain stimulating effect on consumption.

By lowering interest rates, it increases the supply of funds in the market, thereby lowering loan interest rates and promoting investment and consumption.

This has played a positive role in promoting economic growth, alleviating corporate financing pressures, and improving market liquidity.

However, the effectiveness of the policy is also influenced by other factors, such as market confidence in the policy and the economic structure.

The pandemic over the past three years has improved now, but people's confidence in the market still needs to be restored.

Interest rates are getting lower and lower, but people are becoming more and more reluctant to spend their money, instead, they are saving more and more in banks to prepare for potential future income reductions.

This could very likely lead the economy into a negative cycle.

The key is to boost everyone's confidence.