Central Bank Announces: Rate Cut Misses! But Existing Home Loan Rates...
Under the Global Currency Tide: China's Choices - Stabilizing Exchange Rates, Adjusting Structures, and Promoting Transformation The "stand still" strategy of the central bank has once again sparked heated discussions in the market.
The drumbeat of a global monetary policy shift has already begun, with the Federal Reserve taking the lead in lowering interest rates, marking a turning point in global liquidity.
Faced with this new wave of currency, the People's Bank of China (PBOC) has chosen to "act in my own way," not following the rate cut, so what is the logic behind this?
I.
There is Only One Currency in the World: The Dollar Interest rate cuts in the United States, and the world benefits?
Although the currencies of countries around the world are diverse, they are all just "dollars in disguise."
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The dollar is the anchor of the global monetary system, and other currencies must revolve around it.
Every move by the Federal Reserve can set off stormy waves around the world.
This time, the Federal Reserve's interest rate cut is both an opportunity and a challenge for the global economy.
On the positive side, global financing costs are reduced, corporate loans are easier to obtain, and the momentum for economic growth is stronger.
However, the problem is that emerging market countries are suffering.
Capital is like a profit-seeking hyena, running where the benefits are high.
When the dollar interest rate is cut, the currencies of these countries may devalue, the risk of capital outflow increases, and the risk of economic turmoil is also higher.
Don't believe it?
Look at Europe, which was forced to follow the rate hike cycle of the Federal Reserve, and as a result, economic growth was put on "pause."
Japan, on the contrary, chose to lower interest rates, and what happened?
The exchange rate fell faster than a roller coaster, capital fled wildly, the domestic economy was sheared by foreign capital, and the lives of ordinary people became increasingly difficult.
China has not been spared by this wave of dollar interest rate hikes either.
In order to stabilize its position, we have also quietly lowered interest rates against the pace of the Federal Reserve.
But this is not for free, and the cost is not small.
First, foreign trade companies that earn dollars are unwilling to exchange them for yuan, thinking about waiting for the yuan to devalue before exchanging, which means that although the central bank seems to have released a lot of water, domestic funds are still tight, deflation is getting worse, and the economy is becoming less and less vibrant.
Second, in order to stabilize the exchange rate, the central bank has to provide exchange rate swap points, in layman's terms, it is spending money to hire people to speculate on the yuan to prevent capital outflow.
The result is that the bond market is extremely hot, and the funds in the real estate and stock markets have been drained away, making it extremely difficult to invest.
What's more troublesome is that the more the central bank lowers interest rates, the worse the economy gets, and the stock and real estate markets fall more severely.
So, this "dollar in disguise" is not easy for us to wear.
When the Federal Reserve raises interest rates, the real interest rates in our country cannot be reduced, unless the central bank intends to give up the exchange rate and let the yuan become waste paper.
II.
The Choice of the People's Bank of China: Prioritize Exchange Rate Stability, Balance Internal Stability Since the cost of lowering interest rates is so high, why didn't the central bank follow the Federal Reserve in lowering interest rates this time?
The reason is very simple, our current situation, lowering interest rates is like adding fuel to the fire.
First, the interest rate spread between China and the United States is still inverted, which means that depositing money in the United States yields higher returns than in China.
If we lower interest rates now, it will only make this spread larger, and when the time comes, capital outflow will be more serious, and it will be more difficult to stabilize the yuan exchange rate.
Second, China is the world's manufacturing factory, with the world's first production capacity.
However, this also brings a problem, that is, there are too many goods, and the consumption capacity of the people cannot keep up, which is easy to cause deflation.
If interest rates are lowered now, it will only stimulate production and exacerbate deflation, which is not a good thing for the economy.
Therefore, the central bank's "stand still" this time is actually playing a bigger game.
On the one hand, it is necessary to stabilize the exchange rate to prevent capital outflow; on the other hand, it is necessary to balance internal stability to prevent deflation from intensifying.
Both of these need to be grasped, and both hands need to be strong.
In order to stabilize the exchange rate, the central bank has already started to take action.
On the one hand, it provides exchange rate swap points, which is equivalent to spending money to hire people to speculate on the yuan to prevent capital outflow.
On the other hand, it quietly injects base money, increases the money in the market, and offsets the pressure of yuan appreciation.
III.
Precise Regulation: The Interest Rate of Existing Housing Loans May Become a Breakthrough Although it is not possible to lower interest rates comprehensively now, some interest rates can still be adjusted.
There is a term in economics called "marginal change," which simply means that the interest rate closest to the Federal Reserve's federal funds rate should be adjusted first.
Now it seems that the most suitable for adjustment is the interest rate of existing housing loans.
The current interest rates for existing housing loans are generally above 4%, which is much higher than the yield of financial products.
Many people see that it is not as good as repaying the mortgage in advance, anyway, there is not much benefit in keeping the money in hand.
The result is that more and more people are repaying their loans in advance, and the consumer market is becoming more and more desolate.
If the interest rate of existing housing loans is reduced, and is about the same as, or even lower than, the yield of financial products, then everyone will not rush to repay their mortgages, and there will be more money in hand for consumption.
Moreover, reducing the interest rate of existing housing loans can also alleviate the pressure on the net interest margin of banks.
Now it is not easy for banks to make money, and the interest spread is getting smaller and smaller.
If the interest rate of existing housing loans is reduced, it can reduce the interest expenditure of banks and increase the profits of banks, achieving two results at once.
In fact, the central bank has already started preparing for the reduction of the interest rate of existing housing loans.
Replacing MLF with the purchase of government bonds, reducing MLF rates and LPR rates, all of these are to reduce the funding costs of banks and create conditions for reducing the interest rate of existing housing loans.
When the federal funds rate of the Federal Reserve is reduced next year, we will have a greater space to adjust the LPR rate.
IV.
The Long-term Challenge of China's Economy: The Road from a Production Country to a Consumption Country Of course, relying solely on monetary policy cannot cure the "old problems" of China's economy.
The biggest problem of China's economy now is overproduction and insufficient consumption.
In short, there are too many goods, and the people dare not spend money, let alone consume like European and American countries by using credit cards.
To solve this problem, it is necessary to rely on supply-side structural reforms.
In short, it is necessary to produce good things that the people really need, improve the competitiveness of products, and let everyone willingly take out their wallets.
This involves another important challenge for China's economy: the transformation from a production country to a consumption country.
This road is destined to be long and full of challenges.
First, it is necessary to develop new quality productive forces, and not always produce some low-end products.
It is necessary to produce some products with high technological content and high added value to be more competitive in the international market.
Second, it is necessary to promote the growth of residents' income, so that the people's pockets are full, and they can have the confidence to consume.
Finally, it is necessary to cultivate new consumption growth points, such as old-age care, medical care, education, cultural entertainment, etc., all of which are the "blue ocean" of future consumption.
V. Conclusion: China's Economy is Standing at a New Historical Starting Point On the one hand, the external environment is complex and changeable, the global economic growth is weak, and trade protectionism is on the rise; on the other hand, the internal structural contradictions are still prominent, and the task of economic transformation and upgrading is arduous.
Faced with these challenges, the People's Bank of China has maintained strategic determination, has not blindly followed the trend, but has chosen to "act in my own way," and has been steady and steady.
Stabilizing the exchange rate, adjusting the structure, and promoting transformation are the necessary ways for China's economy to go far.
As for China's stock market, it is better to pay more attention to its own capital structure and market environment than to focus on the "every move" of the central bank.
Only by solving its own problems can it truly go out of an independent trend.
The future of China's economy is promising!