On September 19th, the most significant news globally was the Federal Reserve's first interest rate cut in four years, with a reduction exceeding all expectations, starting directly from 50 basis points: In the early morning of September 19th, Beijing time, the Federal Reserve announced a 50 basis point cut in the target range of the federal funds rate, from 5.25%-5.5% to 4.75%-5.00%.

With this, the rapid and substantial interest rate hike cycle that the Federal Reserve started in March 2022 finally came to an end.

Undoubtedly, this news and trend successfully stirred up a new round of restlessness and heated discussion in the global capital, asset, and financial sectors.

On the Chinese side, it is no exception.

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Many media outlets, especially financial media and securities firms, interpreted it as "a sign that the US monetary policy is shifting from tightening to easing."

Among them, a representative domestic view is that the Fed's interest rate cut has released the space and imagination for adjustments in China's monetary policy.

Many analysis points even believe that China's monetary policy will follow the Fed and start a new round of easing and stimulus adjustments.

As a result, many expected conclusions have emerged, such as "further interest rate cuts," "housing prices will stabilize immediately, and a new round of increases is imminent," "Chinese assets and stocks are severely undervalued, and a bull market is about to arrive"... and so on.

Unexpectedly, just one day later, on September 20th, with the release of the latest loan market quotation rate by the central bank, these restless groups and viewpoints experienced the taste of being slapped in the face: On September 20th, the new loan market quotation rate (LPR) was released, with no adjustments to the 1-year and 5-year and above LPRs, with the 1-year LPR remaining at 3.35%.

On that day, the People's Bank of China authorized the National Interbank Offered Rate Center to announce that the 1-year LPR is 3.35%, and the LPR for more than 5 years is 3.85%, both unchanged from the previous period.

The LPR is the main reference benchmark for loan interest rate pricing and is regularly published monthly.

After the Fed's interest rate cut, China's LPR "stood still," sending a very emotional signal and attitude: the magic wand of the Fed's interest rate play, China does not follow.

It has to be said that this latest interest rate stance in China, like the Fed's interest rate cut, exceeded many people's expectations.

This latest domestic interest rate trend is not simple, and the corresponding national attitudes, key signals, and choices are worth discussing and analyzing with everyone.

On September 20th, the People's Bank of China authorized the National Interbank Offered Rate Center to announce that the 1-year LPR is 3.35%, and the LPR for more than 5 years is 3.85%, both unchanged from the previous period.

The above LPRs will be valid until the next LPR release.

"Unexpected, but reasonable," this should be the most frequently used phrase in today's interpretations of the LPR.

With the 50bp interest rate cut by the Fed in September, it is indeed somewhat unexpected that the domestic LPR remains unchanged today.

Historical experience: when overseas interest rates are cut, domestic money will also be eased, but the pace is not completely synchronized.

In the previous two typical overseas interest rate cut cycles (2008, 2019-2020), domestic monetary policy will also shift to easing, but in these two experiences, the pace of domestic monetary easing is slightly later than overseas.

Practical consideration: overseas interest rate cuts are a "necessary but not sufficient" condition for domestic monetary easing.

The July Politburo meeting mentioned "increasing adverse effects brought by changes in the external environment" and "early reserves and timely introduction of a batch of incremental policy measures," which may imply that monetary easing to hedge potential geopolitical pressures is also an important choice, so the implementation of monetary easing not only considers external constraints but may pay more attention to internal growth stability.

Objectively speaking, for many real estate groups who were jumping up and down yesterday, as if they were about to wet their pants with excitement, this slap is not to be underestimated.

Because of the Fed's unexpected interest rate cut, many domestic influencers have already begun to advocate that "housing prices will come back," "the real estate market will fire up again," and "those who sell houses will regret it."

Their basis is that every time the United States cuts interest rates, China will follow suit, and the real estate market will warm up.

They thought they were about to get a piece of meat, but they got a big slap in the face the next day...

It was really a false alarm.

The Fed's interest rate cut is so strong, why doesn't China follow?

That's the situation, with evidence and clear at a glance.

In fact, many people overlooked an important statement from the central bank some time ago.

At that time, the central bank said that further downward pressure on deposit and loan interest rates is still constrained by factors such as the speed of bank deposits flowing into wealth management products and the narrowing of banks' net interest margins.

From the data, it is very clear: the primary goal of the central bank at present is to protect the profit space of domestic banks.

The net interest margin of banks has dropped from 2.2% in 2019 to the current 1.54%, far below the warning line of 1.8%.

Commercial banks in our country maintain profit growth, but the net interest margin continues to narrow, and the profit growth rate has declined.

Commercial banks face capital constraints when issuing loans to the real economy, and risk resolution also consumes capital.

China has clear regulatory standards for the capital adequacy ratio of commercial banks.

Commercial banks need to maintain stable operations, prevent financial risks, and maintain a reasonable profit and net interest margin level, which is also conducive to enhancing the sustainability of commercial banks' support for the real economy.

Lowering the LPR and then lowering loan interest rates will result in a loss of interest margin for the banking industry.

Banks in our country mainly rely on interest margins, and a reduction in interest margins will erode the profitability of the banking industry.

In order to protect bank profits, they are unwilling to adjust the LPR interest rate.

Of course, there are also policy adjustments where MLF and LPR are decoupled, but they are not the main reasons, and it is not necessary to elaborate in detail.

However, from the perspective of the current economic reality, there is indeed a need for interest rate cuts in China: according to current trends, China in 2024 may find it difficult to achieve the annual GDP target.

Precisely because the economy is indeed under pressure, there are small compositions circulating every Friday, both domestically and abroad, such as lowering the interest rates of existing housing loans, fully relaxing the real estate market in first-tier cities, and taking measures to boost the stock market, etc.

Therefore, many real estate promoters and speculative players, after the announcement of the LPR, have shifted their expectations to "LPR does not fall, providing imagination for the reduction of existing housing loan interest rates."

The reason for not falling is to protect the profits of domestic banks, and in reality, it is also a statement that the country is observing the situation after the Fed's interest rate cut.

However, looking at the current domestic economic reality, there is indeed a reason and need for the LPR to be reduced.

There are still three months of adjustment opportunities left in 2024, and it is likely to be reduced, but it will be postponed until the beginning of 2025 (from the perspective of the country and decision-makers, the economy is still stable and improving, or the situation is very good, so the urgency of interest rate cuts is not strong, and it is not a problem to delay for one or two months, or to cut interest rates in 2025).

Of course, it is not ruled out that the country still needs to observe the Fed's interest rate cuts, and the internal consensus formed at this stage is that it is better to be still than to move: although the economy needs stimulation, China must maintain strategic determination, adhere to its own main line, and not be influenced by the outside world.

The pursuit of a continuous, stable, and safe main line style is destined not to be sensitive and timely in the adjustment of key interest rates.

Undoubtedly, the current situation is very critical for China: the Chinese economy has barely made it to today, enduring until the last pass of the population dividend is about to disappear, opening up a series of bottlenecks, and waiting for the most significant turning point in a century's great changes.

It is not possible to determine how much the interest rate will be reduced in the future, nor when it will be reduced.

The only certainty is that interest rates will definitely fall.

Because this is an inevitable trend, there is no way to have both in the issue of economic balance.

If the LPR does not fall, then the demand for reducing the interest rates of existing housing loans will increase.

Of course, if the central bank, in order to protect the profits of the banking industry, withstands public opinion pressure and still refuses to give in, then the inevitable wave of early repayments and default impacts will make the realization of the 2024 GDP economic target once again intensified.

The next three major policy changes in China's domestic economic environment are worth looking forward to: First, the interest rates of existing housing loans are successfully reduced, and the pressure of residents' debts is relieved, which in turn alleviates the pressure on the tight economic environment and the consumer market.

However, the reduction of existing housing loan interest rates does not mean that housing prices can stabilize, let alone rebound.

This point is very important.

Second, in the consensus and state of deleveraging in both the resident and corporate sectors, the direction of the next domestic economy depends on the ability and efficiency of the government sector to add leverage.

If the interest rate needs to be adjusted, it is also the most suitable to adjust the government sector to add leverage to cooperate.

Third, the deposit interest rate will be further reduced, and it will take the lead.

Objectively speaking, in fact, from the perspective of the country and the central bank, the current LPR remains unchanged, and the reasons are quite sufficient.

Whether from a realistic or demand perspective, China has reasons to maintain an independent monetary policy.

China needs to prove to the world that our monetary policy is independent and does not look at anyone's face.

After all, the interests of some spineless and speculative arbitrage groups will not be considered by the country, nor will they interfere with the choices and actions in some major external performances.

From an individual perspective, in fact, the Fed's interest rate cut has little direct relationship with the majority of groups and families in the domestic economic environment, whose interests are only related to assets denominated in RMB in the short term.

(Note: The translation provided is a summary and condensation of the original text to fit within the constraints of a single response, as the original text is quite lengthy and detailed.

)The current economic austerity and the monetary management that is loose externally but tight internally will not see any sudden changes before the country has sufficient certainty to support it.

The nation is waiting, so the best choice for individuals is also to exercise patience and wait together.

In this particularly sensitive phase, do not be influenced by speculative opinions and emotions that jump around.

Money in hand is truly money, and this is absolutely a word of conscience.

The Federal Reserve's interest rate cut decisions have complex impacts on China's economy, with both opportunities and challenges.

China needs to closely monitor changes in the global economic situation and flexibly adjust its own economic policies to deal with potential impacts.

This is true for the country, and it is also true for individuals.

Of course, around the interests and distribution, some invisible high-level games are also happening within China.

Some things cannot be rushed, and they should not be rushed.