Recently, the Federal Reserve began to frequently raise interest rates in . First, it raised interest rates by 25 basis points on March 16, and on May 4, it announced a 50 basis points rate hike. In addition to hiking interest rates, the Federal Reserve also carried out balance sheet reduction. The dollar index also rebounded strongly to above 104, setting a new high in 20 years. Affected by this, the central banks of many countries have announced a rate hike.
At the same time, my country's central bank announced a 25 basis point cut in mid-April. This cut released a total of about 530 billion yuan of long-term funds. Subsequently, major domestic banks followed suit and lowered the interest rates for medium and long-term deposits. At present, domestic bank deposit interest rates are still on the downward trend.
Now many netizens are wondering why the United States is frequently raising interest rates, but China wants to cut interest rates? In fact, there are two main reasons why the Fed has raised interest rates frequently this year: First, the U.S. inflation level has remained high. According to , the U.S. Consumer Price Index (CPI) rose 8.3% year-on-year in April, higher than the 8.1% expectation. The U.S. inflation hit a 40-year high. In order to reduce the inflation level in the United States, the Federal Reserve entered a continuous rate hike.
Second, the Federal Reserve hopes to attract hot money to the United States through interest rate hikes. In 2020, affected by the epidemic, the Federal Reserve continued to cut interest rates and invested nearly $5 trillion in the international financial market. However, this has also led to the continued depreciation of the US dollar index, and the global price of commodities soared rapidly. Now the US economy is in a cycle of recovery. The Federal Reserve hopes to attract hot money to the US mainland by raising interest rates or reducing balance sheets to stimulate the growth of the US economy.
So, what impact will the US rate hike and the rebound of the US dollar index have on my country? There are mainly the following: On the one hand, the Federal Reserve's interest rate hike will cause the US dollar to begin to strengthen, and the RMB exchange rate will begin to weaken, which will lead to the strengthening of my country's export competitiveness of goods, which will be beneficial to my country's foreign trade exports. Especially this year, due to the impact of the epidemic, domestic investment and consumption demand has declined. It is obviously particularly important to drive China's GDP growth through foreign trade exports.
Furthermore, the Federal Reserve raises interest rates, while our country chooses to cut interest rates, which will lead to a gradual narrowing of the interest rate spread between China and the United States. Coupled with the continued depreciation of the RMB exchange rate, some domestic and foreign hot money will flow out of China. In this way, stocks and real estate denominated in RMB will be under great pressure, not to mention that my country's stock market and real estate market have obvious bubbles. If domestic and foreign hot money flows out in large quantities, it will cause the asset bubble to burst.
So, why does the Fed raise interest rates, but the central bank of our country wants to cut interest rates? The main reason is that the central bank of our country pursues an independent monetary policy , which is more conducive to the stable development of the domestic economy. The central bank of my country chose to cut interest rates mainly because of the following three factors: First, due to the impact of the epidemic, domestic people now like to deposit money in banks and are unwilling to consume. The deposits of Chinese residents have exceeded 100 trillion yuan. Therefore, the central bank hopes to encourage everyone to spend money by cutting interest rates, so that economic growth can be driven through consumption.
Furthermore, reduce the financing costs of the real economy and allow small and medium-sized enterprises to develop better. Due to the impact of the epidemic, all walks of life have been affected to varying degrees. In order to reduce the financing costs of small and medium-sized enterprises, so that small and medium-sized enterprises can successfully overcome this difficult period, and to maintain stable development of our country's economy, it is also an urgent task for my country's central bank to reduce the financing costs of small and medium-sized enterprises.
Finally, in order to protect the stability of the stock market and the real estate market, avoiding big ups and downs. As the Federal Reserve continues to raise interest rates and reduce balance sheets, the US dollar appreciates and the RMB depreciates, which will cause a large number of hot money to sell domestic RMB assets and choose to flow out.Of course, since my country implements strict foreign exchange controls, it is not easy to get out of hot money. However, the central bank of my country has injected a lot of liquidity into the domestic financial market through interest rate cuts and reserve requirement ratio cuts, as well as lower mortgage interest rates, which are conducive to the stability of the domestic financial market in the medium and short term.
Why does the Federal Reserve raise interest rates continuously? It is mainly to control its domestic inflation level and to attract a large amount of hot money to flow into the United States through interest rate hikes to help the recovery of the US economy, and to squeeze out the asset bubbles of some countries and create economic crises for other countries.
And why should China cut the reserve requirement ratio and interest rate? Mainly to stimulate domestic consumption demand. In addition, reducing the financing costs of small and medium-sized enterprises is also to maintain stable growth in the domestic economy. Of course, appropriately releasing some liquidity to the financial market can also prevent the price of asset prices such as the stock market and the real estate market in order to stabilize the domestic financial market.
