Analysis Of The Central Bank Raising The Deposit Reserve Rate Without Raising Interest Rates

The people's Bank of China has decided to increase the deposit reserve ratio of deposit financial institutions by 0.5 percentage points from November 16, 2010.

1. the problem of negative interest rate is disturbed by the inflow of hot money.

In the process of RMB appreciation, the US and Japan suddenly adopted a new round of quantitative easing monetary policy. At this time, raising interest rates again will stimulate a large amount of inflow of hot money, thus further enhancing the pressure of RMB appreciation, making our economic growth and employment environment greatly affected when the structural adjustment is not in place. In addition, raising interest rates will increase the financing cost of enterprises, coupled with the appreciation of the renminbi, the rise in commodity prices, and the limited ability of internal and external market consumption, and the profitability of enterprises will be greatly affected.

2. the intensity of price control is increasing, but the severity of liquidity is not decreasing. Therefore, the volume tightening policy is still the main theme in the future.

Recent price increases mainly come from agricultural products and bulk commodity markets. The state has adopted some measures to prevent inflation.

However, the problem of liquidity abuse is still serious.

Because in the early stage of the bailout, the government has invested a lot of "high liquidity" currency, and now, because of the lack of "new growth point" support in the internal and external market, the first stage of rescue funds began to show signs of "redundancy".

In view of this, rapid withdrawal of funds is also an urgent task for the central bank.

3. tightening monetary policy is aimed at hedging the US and Japan.

4. to raise the reserve ratio is to alleviate the foreign exchange payment pressure caused by the trade surplus.

In any case, the more foreign currencies come in, the greater the scale of the corresponding RMB issuance. This will further intensify the pressure of inflation in China.

The contraction of silver is also a hedge against such foreign currency holdings.

5. because loans are controlled, raising interest rates will only increase bank costs.

The increase of the deposit reserve ratio is also a supplementary measure to coordinate with the CBRC's rectification of bank loan business, while raising interest rates is not the case.

Although interest rates after interest rates remain unchanged for banks, the recent increase in interest rates is actually a serious blow to banks' profits because of the recent tightening of credit business.

6. tightening monetary policy is aimed at easing the pressure on the recent appreciation of the renminbi.

We have to control inflation pressure directly by intervening prices and adjusting supply and demand, while the pressure on appreciation is alleviated by indirect control of hot money inflow and tightening of monetary policy (hedging the "basic currency").

In short, our monetary policy, on the one hand, needs to channel funds into the real economic sector through interest rate and exchange rate price signals, so as to create a "new growth point" urgently needed to get rid of the crisis and absorb the flood of liquidity. On the other hand, we should control the inflow of hot money and idle funds into fictitious economic sectors or "speculative" speculation of the real sector of the economy by means of quantity regulation, so as to prevent further deterioration of inflation and asset bubbles.