Zhang Bin: Interest rates should be lowered as soon as possible, and with greater intensity

Zhongxin Jingwei client August 3 title: "Zhang Bin: Interest rates should be reduced as soon as possible, and the intensity should be greater"

　　Author Zhang Bin (Deputy Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences)

　　I think China should now lower interest rates as soon as possible, and with a little more force. Because now is a very good time, an important time window.

　　At present, China's economy has not fully recovered to its pre-epidemic state, and the downward pressure on the economy is there. In such an environment, macroeconomic policies should be more active and hedge against downward pressure on the economy. In terms of macro policy tools, there are about three categories in the short term: budget finance, the tone within the budget in 2021 is basically determined, the main reason for accelerating the implementation during the year is not enough to hedge the downward pressure on the economy; extra-budgetary fiscal expenditure, mainly local financing platforms, is now in the stage of rectification and treatment, with many stock risks and strict incremental control; therefore, monetary policy can only be used.

　　At present, the Fed is not expected to raise interest rates, but the general direction will certainly slowly normalize. At this time, There is no pressure on China to cut interest rates and loosen monetary easing. Once the Fed starts to shrink its balance sheet and raise interest rates, and then wants to reduce interest rates, and then wants to use monetary policy, the pressure on the foreign exchange market will be very large, and the pressure on the exchange rate will be very large. Once fed policy tightens, we need to be more biased toward fiscal policy.

　　It is often said that monetary policy is useless, so why do the United States, Europe, and Japan use it desperately? What exactly will be the result of loose monetary policy?

　　I think the experience of the United States, Japan and Europe tells us that monetary policy is useful, not useless. The process of economic recovery is inseparable from a relaxed policy environment. We have done empirical research in this regard, mainly to see the impact of lower interest rates on the distribution of income at all levels of the labor market. The results show that the lower the interest rate, the lower the income of the lower income class, the more the income of the upper and middle income classes improves little (wage income). For the 10 percent of the bottom earners, a 1 percent cut in interest rates could increase their average of 2.8 hours of work per person per day.

　　In addition, it is now in a critical period of hidden debt of local governments and the risk treatment of small and medium-sized banks, with lower interest rates, lower debt costs, and more liquidity, which is helpful for alleviating risks.

　　Some people are worried that flooding will cause inflation, and I don't think there is any need to worry. Because our past money and credit growth was not brought about by lower interest rates. In the past, credit growth was due to the large amount of borrowing by local financing platforms, and credit-driven debt and credit growth. Now they are contracting, and the growth rate of generalized credit in the whole society continues to decline. The role of monetary policy is simply to keep the rate of decline from being too drastic. After lowering interest rates, letting the private sector have more assets and less debt, and then making the balance sheet a little stronger and the credit a little more, it only slows down the growth rate of social finance, rather than pushing it back.

　　Still others are worried about house prices. The credit growth rate of the whole society has slowed down significantly, and the probability of house prices falling in 2022 is there. Even if house prices rise, can we kidnap our monetary policy? This doesn't make sense at all. Even if the rise in urban housing prices has its own problems, it should adopt local targeted policies rather than sacrificing the total amount policy. (This article is based on Zhang Bin's speech at the monthly research and judgment meeting of the Primus Macro Forum hosted by the China Development Research Foundation, and has not been reviewed by me.) (Zhongxin Jingwei app)

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