Focus on the central bank’s monetary policy in 2007: Interest rate tools are under attack from both sides
If the increase in foreign trade surplus in 2007 is expected, then there are two things that are unexpected in 2007. One is that domestic pork prices will rise so fast; the second thing is that domestic pork prices will rise so fast; That is why the subprime mortgage crisis caused by the US credit crisis will be so serious. It was these two unexpected and one expected events that tested the central bank’s ability to control monetary policy in 2007, a year when the central bank used monetary policy most frequently. At the end of the year, the Central Economic Conference decided to “start from “Tight” monetary policy tone, which means that monetary policy will still play the leading role in macroeconomic control next year.
Deposit reserves
——Tightening intensity rarely seen in the world
Deposit reserves, known as the ax in monetary policy, were used by the central bank 10 times in 2007, almost evenly It is once a month, and the last time it raised the deposit reserve interest rate, it was adjusted by one percentage point, a tightening intensity rarely seen in the world.
The original intention of the central bank to raise the deposit reserve interest rate was to prevent excessive inter-bank liquidity from flowing into the real economy and causing the economy to overheat. In addition, it is also necessary to ensure that the banking system does not suffer a liquidity crisis due to excessive lending. In addition to increasing foreign exchange reserves, the central bank’s open market operations this year have also been astonishing. The central bank’s monetary policy implementation report for the third quarter of this year showed that at the end of September, the balance of central bank bills was 3.9 trillion yuan, an increase of 0.0% from the end of the previous year. 9 trillion yuan. As of November 1, approximately 230 billion yuan of liquidity had been recovered through the government bond repurchase operation.
However, such a substantial increase in deposit reserve interest rates and vigorous open market operations failed to curb the flooding of liquidity. In this regard, Huo Deming, an adjunct professor at the Economic Research Center of Peking University, bluntly believes that this is actually a manifestation of out-of-control liquidity. If the ever-expanding foreign trade surplus is the direct cause of excess liquidity, part of the reason for the inability to absorb excess liquidity is that our banks are not open enough to the outside world, and the existing banking industry has not been modernized and has no ability to provide better services. multiple financial products to absorb liquidity.
Interest rate tools
——Fighted from both sides
The CPI still hit a record high in November, and pork prices were still the main driver. This is a factor that many economists have not thought of. Starting from June this year, the CPI has been pushing up one percentage point each month for three consecutive months. In order to prevent the CPI from rising further and prevent the real interest rate from becoming negative, raising interest rates has become the first choice of the central bank.
From March to September 2007, the central bank raised interest rates a total of 5 times, but the frequency of these 5 rate hikes was very distinctive. Starting from March, the first 3 hikes were every other month, but then the As pork prices rapidly pushed up the CPI in June, July and August, and signs of inflation gradually emerged, the central bank significantly accelerated the pace of interest rate hikes in July, and continued to raise interest rates in July, August, and September. But since September, although the CPI continues to rise, the central bank’s pace of raising interest rates has come to an abrupt halt. The secret is that on September 18 – shortly after the central bank raised interest rates for the fifth time, the Federal Reserve cut interest rates – a subprime mortgage crisis plunged the US financial market into a liquidity dilemma, and the market expected that the United States would be affected by this. Entering an interest rate cut cycle.
As the Federal Reserve cuts interest rates, central banks around the world are adjusting their monetary policies, and China is no exception. After the Federal Reserve cut interest rates for the third time in December, Central Bank Governor Zhou Xiaochuan admitted: “The Federal Reserve’s interest rate cuts have a considerable impact on China’s monetary policy.”
It can be said that these two unexpected things have put the central bank’s interest rate tools into a dilemma. Due to the dilemma of being attacked from both sides, the central bank has been reluctant to raise interest rates for the sixth time. It was not until December 21, when the possibility of the Federal Reserve’s consecutive interest rate cuts was expected to decrease, that the central bank adopted an asymmetric interest rate hike method and slightly raised the loan interest rate by 18 basis points.
Exchange rate tools
——Surviving in the cracks
The exchange rate of RMB against the US dollar has always been a controversial issue. There are different opinions at home and abroad as to whether the RMB should appreciate. Some leading figures in academia, such as McKinnon and Mundell, have proposed that the RMB should not appreciate. However, some international investment banks and domestic scholars believe that the RMB exchange rate is significantly undervalued and should be strengthened. The rapid appreciation can even be done in one step to slow down the pressure caused by the increasing trade surplus and the pressure of speculative hot money entering the country.
Arguments remain arguments, and the RMB exchange rate is still following its own trajectory. Over the past year, the RMB has appreciated against the US dollar by 6%. Of course, there are factors behind this, including the weakening of the US dollar, as well as political pressure from the United States. Just as the RMB increased its appreciation against the U.S. dollar at the end of the year, Central Bank Governor Zhou Xiaochuan began to revive the topic of a strong U.S. dollar.
At a small academic seminar held in Tsinghua University in September 2007, I was faced with the views of McInlon and Paul Walker, the chairman of the Federal Reserve during the Reagan era, that the RMB exchange rate should remain stable. Wu Xiaoling, deputy governor of the central bank, stated that China will take the opportunity of changing the RMB exchange rate formation mechanism to adjust its domestic economic structure.
Perhaps we can infer from this that the central bank still insists on stability when it comes to the RMB exchange rate.After all, the history of the yen against the U.S. dollar serves as a warning, and increasing the free floating area of the RMB exchange rate can alleviate pressure from trading partners.
Special treasury bonds
——Coordination of fiscal policy
When it comes to the central bank’s monetary policy in 2007, one thing that cannot be ignored is the 1.55 trillion yuan of special treasury bonds. This is also the first time that fiscal policy and monetary policy have joined forces to combat excess liquidity.
In June 2007, the first batch of special treasury bonds was issued. Although judging from the central bank’s balance sheet, this was just a change in the central bank’s asset side projects: From the central bank’s balance sheet in August this year, it can be seen that It can be seen that due to the purchase of special treasury bonds issued by the Ministry of Finance, the “foreign exchange growth” under the central bank’s asset side has significantly slowed down compared with July, while the assets under the government bond side have increased by 600 billion yuan.
Although it is a small project change, this move means cutting off the relationship between the increase in foreign exchange reserves and the central bank’s base money supply. Its significance is far-reaching. Some market participants commented: “In the long term, The establishment of China Investment Corporation and the issuance of special treasury bonds have made it possible to eradicate excess liquidity.”
In addition, the issuance of special treasury bonds has also increased the central bank’s tools for recycling liquidity. The central bank has obtained special treasury bonds. Finally, the camera can be issued based on the financial situation in the market. Therefore, the issuance of special government bonds can be said to have the effect of “killing two birds with one stone”.
Credit tools
——Intervention in housing prices
Originally, asset prices were not within the scope of the central bank’s control, but the domestic housing prices that remained high and rising made the central bank We had to use measures to strictly control credit instruments.
On September 27, the People’s Bank of China and the China Banking Regulatory Commission jointly issued the “Notice on Strengthening the Credit Management of Commercial Real Estate”, which increased the down payment ratio for second homes to 40%. In December, it was determined that the down payment ratio for second homes would be based on family units. According to the identification standards, families that have used provident fund loans to purchase a house and apply for a mortgage loan again will be regarded as a second home. At an internal meeting of the Central Bank at the “Special Meeting on Strengthening Commercial Real Estate Credit Management” near the end of the year, Liu Shiyu, deputy governor of the Central Bank, once again issued a voice to resolutely cancel mortgages and increase mortgages and tighten housing loan controls. This layer of stricter The purpose behind this is to prevent property speculators from pushing up housing prices.
In addition to using consumer credit tools, the central bank is also gradually tightening credit limits for commercial banks. At the end of the year, news came out that the central bank required commercial banks to report their loans monthly next year. It can be imagined that the central bank wants to control the impulse of commercial banks to lend.
At the end of 2007, while we were taking stock of the central bank’s monetary policy, we can imagine that the monetary policy in 2008 may be used more frequently than in 2007. After all, the central bank’s monetary policy in 2008 will change from ” Moderately tight”AAGFHTRYKUYIU7OUP
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