Ye Tan: Why Did The Central Bank Not Cut Interest Rates?

Zhou Xiaochuan, governor of the people's Bank of China, spoke at the thirtieth meeting of the international monetary and financial committee in Washington.

When it comes to monetary policy, he said: the Chinese government will continue to carry out prudent policy stance to carry out credit and macro prudential policies to ensure reasonable growth in capital, credit and social financing while maintaining liquidity at a reasonable level.

What is a reasonable level? What is a prudent stance? The behavior of the central bank can be used for reference and help the parties to identify the real coordinates.

The interest rate of interbank lending market is stable, and large-scale easing has not arrived.

In fact, the central bank may think that "deleveraging" can speed up the reform of the real economy.

In October 11th, Ma Jun, chief economist of the new central bank, said that the possibility of a hard landing for China's economy was very low, and that large-scale stimulus policies would not occur every time the economic slowdown occurred. This is one of the "new normal" needs of the Chinese economy that needs to be recognized.

In the past analysis, the central bank's bottom line is that although China's economic growth is slowing down, the employment situation in China is still stable.

A recent study by Ma Jun led research team showed that the percentage of jobs in the service sector that accounts for GDP of China's GDP increased by one percentage point, and the jobs created by cities could offset the loss of jobs caused by China's economic slowdown by 0.4 percentage points.

Over the past few years, the proportion of China's service industry in GDP has increased by an average of 1 percentage points per year. Du Dawei, a senior researcher at the John Thornton center of Brookings Institution in the US think tank, said that in the first 8 months of this year, China has achieved about 10 million new jobs, which is why the Chinese government has calmly treated the slowdown in the economy to 7%.

Last year, the contribution rate of consumption to GDP has reached 50%, and the economic structural adjustment has begun to bear fruit.

Ma Jun clearly pointed out that the leverage of real estate, some state-owned enterprises and local government financing platforms has been too high, and further lending to these areas should be avoided.

In the future, even if there is a downward trend in the economy, it will mainly focus on directional reduction instead of universal drainage.

Echoing the speeches at international conferences, reform of the financial system, state-owned enterprises and financial institutions will continue. Urbanization and household registration reform will be carried out as planned.

Zhou Xiaochuan stressed that China's economy will continue to contribute to international monetary stability through balanced reform, structural adjustment and support for the stability of growth.

It seems that the central bank is composed of some like-minded market groups, and is determined to push forward the reform with prudent monetary policy. Large scale money injection is harmful to China's economic restructuring and the suppression of excess capacity.

Unless China's economic growth is stalling, do not expect to see the currency boom.

In the deep water area, the real economy needs to break through the restrictions of local protectionism, and fiscal and taxation reforms are essential.

Securities and other markets have strongly supported the merger and reorganization of entities. In the future, there will also be the consumption power released by urbanization, and the efficiency brought by the new economy. In any case, the Chinese economy can not be dominated by vicious competition in the local economy, and the same way for the export of heavy chemical industries will continue.

Of course, not all economists share the same understanding.

Mr. Jian Ping, the chief economist of the National Information Center, referred to interest rate cuts, which indicated that the monetary policies of central banks around the world were mainly focused on CPI, while referring to PPI and asset prices, asset prices were mainly house prices.

Last year, China's CPI was stable, PPI fell sharply, and house prices remained high. Reference CPI had no need to adjust. We should see that PPI should cut interest rates and see that housing prices should raise interest rates. After considering it comprehensively, our decision is not to raise interest rates nor to cut interest rates.

This year, the decline of PPI has increased.

The increase has narrowed compared with last year, and housing prices have begun to turn downward. The conditions for us to cut interest rates are gradually maturing, or we can choose to reduce interest rates in a targeted manner. In the future, if house prices, CPI and PPI decrease, there will be a comprehensive interest rate cut.

Some analysts stressed the need for a comprehensive interest rate cut in order to avoid the economic downturn. Once the domestic investment is inhibited, the Chinese economy will fall into a Japanese style cycle.

At present, this view has not become a consensus. Reform and urbanization are the main threads of the future.

From the perspective of reform, mergers and acquisitions, encouraging entrepreneurship, restraining localism, encouraging private financial forms, encouraging the development of financial derivatives, and making up for the lack of capital mobility will become the dominant direction in recent years.