The Central Bank Should Consider A Small Increase In Interest Rates For &Nbsp.

In August, China's CPI rose 3.5%, a 22 month high, and the negative interest rate has actually been 7 months since the February inflation rate exceeded the first year deposit rate (2.25%).

In the face of this situation, calls for higher interest rates have been heard. For example, the recent increase in interest rates in Davos Economic Forum held in Tianjin has become one of the hottest topics. Almost all officials and scholars are being asked to answer "whether to raise interest rates" or "when to raise interest rates".

Li Daokui, director of the central bank's monetary policy committee and director of the China and world economic research center of Tsinghua University, said the central bank should consider raising interest rates slightly.

The negative interest rate is the abbreviation of "negative real interest rate", and the so-called real interest rate is left behind the nominal interest rate (that is, what we usually call interest rate) minus the inflation rate.

To illustrate, the real interest rate is actually a series of interest rates, corresponding to the deposit period.

At present, the three month, one year, and five year fixed interest rates are 1.71%, 2.25% and 3.6% respectively, and the real interest rates are 3.5%, -1.79%, -1.25% and 0.1% respectively.

Negative interest rate can be regarded as a "regressive tax", that is, the lower the income, the higher the tax rate.

Under the current "negative interest rate" level, 10 thousand yuan per year is required to lose 125 yuan of purchasing power per year.

The purchasing power of this loss is quietly pferred to the indebtedness.

Because the wealth of low-income people is mainly concentrated on deposits, and the forms of wealth of high-income people are more diversified. They not only have assets to resist inflation, such as stocks, real estate, artworks, but also are more likely to get bank loans, so negative interest rates create a "regressive tax" situation that pfers wealth from low-income people to high-income people.

This is extremely unfavorable to the building of a harmonious society.

At the same time, negative interest rate is also an "old age tax". The largest group of victims is the elderly.

The process of wealth accumulation for the elderly has been completed. Later, we must rely on savings to spend our old age.

Most of them are in the rural areas, with only small pensions. The pensions in the cities are much more abundant and the standards are gradually rising, but they also can not keep up with the pace of inflation.

Most elderly people will like the kind of money that money puts in the bank, but the negative interest rates in the late 80s and the middle and long term of last century have brought cruel lessons to many people, so that many natural savers take their life savings into the disturbing stock market.

The stock market is full of white hair and negative interest rate is an important reason.

At the economic level, negative interest rates push inflation and cause asset bubbles.

From the 1-8 month of 2010, residents' current savings increased by 11%, while the regular savings grew by 7.9% over the same period, while the medium and long term loans increased by 13.8%, indicating that the willingness of residents to save time is decreasing.

The mechanism of asset bubbles triggered by negative interest rates is also similar: when people find that savings will be lost, and investment or speculation has at least a chance to keep capital and earn money, many savers who are originally suitable for long-term deposits will become investors or speculators, and they will unconsciously work together to push up all asset prices from housing to stock to garlic.

Negative interest rates are a strong driving force for inflation, making negative interest rates a sign of inflation cycles.

Over the past 1990-2009 years, China has seen three significant inflation cycles, 1992-1996 years of big inflation, 2003-2004 and 2007-2008 years of small scale inflation, and persistent negative interest rates during the three inflation cycles.

If the "negative interest rate for three consecutive months" is used as the early-warning standard, the standard can predict all three inflation cycles in the past 20 years, and the number of false alarm is zero.

To eliminate negative interest rates, the solution is simple: raising interest rates.

Instead of a one-time increase of 0.27%, we should disclose to the market the intention of raising interest rates continuously until the real interest rate is positive, so as to curb and reverse inflation expectations.

Although some people may doubt that other ways can be used to control inflation, such as raising the deposit reserve ratio, reducing the total credit scale and open market operation, etc., because interest rate is a kind of price, the adjustment of price can be seen immediately, and it can affect human behavior quickly.

When people choose to deposit or withdraw money, they look at the interest they can get / lose, not whether the central bank has raised the reserve ratio, whether the credit scale has been compressed, and whether the open market operation has loosed or tightened.

Although other austerity methods can indirectly increase the interest rate of some financial products, it can also raise some loan interest rates within a certain range, for example, the annual interest rate of entrusted loans has increased from less than 6% of the beginning to more than 10%, but these are not shared by most people.

In addition, the interest rate increase has little interference with the micro economy, leaving some choices for others.

The same is austerity policy, if it is to raise the reserve ratio or to reduce total credit, then the problem of corporate lending is whether there is "no", and if it is to raise interest rates, it is "how expensive".

And, if it is the former, because the interest rate is at a low level, the credit allocation becomes a "queue", which will inevitably breed corruption and "reverse choice": the bad enterprise will get the loan for "good relationship".

If we raise interest rates, though we can not completely avoid "queuing", we can at least reduce the pressure of queuing, so that more good businesses can get loans.

To avoid "queuing" completely, only long-term interest rates can be marketed.

The central bank affects long-term interest rates by influencing or adjusting short-term interest rates.

In short, the victims of negative interest rates are mainly low-income people and the elderly, which are not conducive to social harmony and will fuel inflation and asset bubbles.

To reverse negative interest rates, we must start raising interest rates immediately.