Gu Mingde: Why Is It Also Known As Prudent Monetary Policy?

The people's Bank of China announced in February 5th that it lowered the deposit reserve ratio of RMB by 0.5 percentage points.

However, after the announcement of the people's Bank of China, it continues to say that it will continue to implement a prudent monetary policy.

Why does the central bank still insist on implementing a prudent monetary policy after cutting interest rates and lowering the benchmark? Why not follow loose monetary policy in Europe, the United States and Japan?

Here, we first need to know the intrinsic meaning of prudent monetary policy and loose monetary policy.

Steady and loose understanding is whether the central bank will expand the money supply.

For example, by December 2014, the growth rate of money supply will be 12.2%. In 2014, if the central bank implements loose monetary policy, the money supply will increase substantially, for example, it will rise to around 15%.

If the Central Bank continues to implement prudent monetary policy, that means the money supply will remain roughly the same level as 12.2%.

Otherwise, it is hard to say that we should continue to be moderate and moderate.

The outsider may ask, it is possible to reduce the accuracy and to continue to reduce the accuracy. Why does the central bank not change?

A sound formulation? Reduction is an important channel to expand the money supply.

Here, we must find out the underlying reasons for the reduction of the central bank.

Over the past decade or so, China has entered the world trade organization with a large surplus of current account and capital account every year.

The result of the surplus is a large increase in foreign exchange reserves, a large increase in foreign exchange reserves means that foreign exchange, that is, the large Renminbi.

At that time, the average annual growth rate of RMB was more than 20%.

In order to mitigate the impact of excessive RMB on prices and house prices, the central bank can only hedge, withdraw and lock these Renminbi by raising the deposit reserve ratio, so that the total amount of money supply is relatively stable.

Today, China has become the world's largest exporter and exporter of foreign capital, and its current account and capital account have basically been balanced.

Foreign exchange reserves and foreign exchange reserves will not increase unilaterally, but two-way fluctuations.

As a result, the main channel of PBC's currency delivery has changed, and the amount of foreign exchange increased has been decreasing year by year until negative growth.

But money will continue to be put into use.

It is unnecessary and impossible to maintain such a high deposit reserve ratio. Reducing the deposit reserve ratio is a means to maintain moderate money supply.

Logically, there is still room for reducing the deposit reserve ratio, but this does not mean that the central bank will expand the growth of money supply, which does not mean that the central bank changes its prudent monetary policy.

Reduction of interest rates and reduction of interest rates

In the medium and long term, it must be the theme of Lido.

As the market is expected to continue to lower the central bank and reduce interest rates, the Shanghai and Shenzhen stock markets will maintain a certain degree of trading activity this year. The recent downward adjustment will not be too deep.

In the short term, it is difficult to determine all the effects of lowering interest rates and reducing interest rates. On Thursday, the market index dropped on the day, but the gem rose.

Therefore, there is no law to follow.

It is estimated that after the issuance of new shares, the market index will usher in a relatively relaxed trend of stabilization before and after the Spring Festival.