Raising Interest Rates Triggering "Shortage Of Money"

Due to tight liquidity, the interbank market interest rate In June 22nd, the central bank abruptly announced a 23 day suspension of the central bank.

The moratorium did not have much effect on interest rates, which only reduced the overnight interest rate on Thursday by 13.75 basis points, while the interest rates of other periods rose to varying degrees. Among them, the seven day lending rate rose to 9.07%, while the 14 day lending rate rose 191 basis points to 9.06%.

This is an interesting phenomenon. Inflation has been continuously strengthened. It is said that CPI will hit a new high in June, but there is a serious liquidity strain in the interbank market. In our view, it is very simple that the central bank uses the wrong tools.

The liquidity strain now is not the overall appearance of the market, but the result of the central bank's continuous increase in reserves without raising interest rates. China's M2 is as high as 76 trillion and 340 billion yuan, and the proportion of M2/GDP has exceeded 2. This is a terrible proportion, far from being blocked by transformation. The excess liquidity is undeniable.

And why there is a structural problem of excess liquidity and tight liquidity in interbank market, which is rooted in the lack of bank's ability to absorb funds from the equilibrium of the current interest rate control, rather than the money supply problem of the real financial system, which means that the lack of liquidity in the banking market is a false proposition. In essence, it is due to the low interest rate that leads to the lack of bank's ability to absorb deposits and the growing financial disintermediation.

The current high inflation pressure accelerates the unit. Currency devaluation The rate of increase in interest rate is very limited, resulting in the continuous expansion of the risk of exposure to savings and negative returns, resulting in the private sector strengthening the trading preference of increasing trading currency holdings and releasing the cash in hand as soon as possible. Taking this year's grain purchase market as an example, the current price of grain market is not reflected in the market, precisely reflects that farmers expect food prices will continue to rise rather than sell grain. However, reluctant sales can not simply be understood as farmers waiting for a good price, but farmers think that instead of selling grain now, it is better to keep food in hand instead of selling grain now, which reflects precisely that higher inflation has reduced farmers' preference for cash holdings. Similarly, the grain purchasing enterprises raise the purchase price to a much higher level than the market price, and also reflect that enterprises want to convert the depreciating currencies into physical reserves as soon as possible. After all, the price pattern of rice weak rice is reflected by the current price fixing pattern of rice and weak rice under the control of the current development and Reform Commission, which has not yet lifted the price of flour and rice. It can be seen that the increasing demand for trading money makes a large number of financial resources flow out of the formal financial market in the form of financial disintermediation to enter the private market for a flow of speculation.

At the same time, a large number of bank savings resources to buy financial products will also lead to a tight liquidity in the banking system, because financial products belong to the off balance sheet business entrusted to finance, and a large number of banks. Saving resources The purchase of financial products has undoubtedly reduced the liquidity of banks and caused banks not to have enough funds to enter the inter-bank market for lending transactions, thus exacerbating the liquidity of the interbank market.

It can be seen that the recent increase in interest rate and money market interest rate in the interbank market is rising, as the current low frequency electricity shortage in the whole country is rooted in the electricity price regulation. It is precisely because of the continuous negative expansion of the savings negative interest rate under the interest rate control that the current black hole in the interbank market and the repurchase rate are rising.

Therefore, at present, the central bank must comply with the market expectations and implement price adjustment policy instruments such as interest rates. The central bank must speed up and raise interest rates substantially.

Otherwise, the consequences of the delay in interest rates and other policies will not only be the continuation of the money market and the repo rate in the interbank market, but will also push more financial resources into the informal financial market, exacerbate the risk of financial disintermediation and the risk of capital flight, and make the formal financial market at risk of being marginalized.