| Interest rate policy is an important part of a country's monetary policy. As a key economic lever, interest rate has great influence on enterprise and residents investments, household consumption and export. Since Reform and Opening up, People's Bank of China has been enhancing the use of interest rate tools, with interest rates adjustments mote and mote frequent, regulation and control methods more and more flexible and regulation mechanism gradually perfect, which has played an important role in stabilizing prices and promoting our economic growth. The structure of the thesis goes as follows:The analysis of China's interest rate policy consists of two aspects: firstly, an systematic summary of the interest rate policy during the 61 years since the founding of the New China, with the evolution of the policy being divided into 3 phases: interest rate policy from 1949 to 1978, 1979-1995 high rates policy stage and 1996-2010 low rates policy stage. Secondly, analysis of the relationship between our interest rate policy and the economic growth from 1990 to 2009, in order to decide whether the PBC's low rates policy in that period really promoted China's economic growth.Interest rate policy also has its theoretical basis. And the rates theory has always been an important part of economists'research, because it not only guides the interest rate policy but also contains strong policy implication in itself. Not until the 17th Century did economists begin the systematic research of interest rates. Various theories appeared in the process, which can be roughly divided into two schools: actual interest theory and monetary interest theory.The actual interest theory is a long-term interest theory that focuses on analyzing long-term economic factors, mainly including capital productivity doctrine, capital utility doctrine, Abstinenel Theory, time difference Theory and intolerance——opportunity Theory. On the contrary, monetary interest theory is a short-term interest theory, mainly including classical balance doctrine, lendable funds doctrine, liquidity preference doctrine, IS——LM model。Interest rate is an important economic lever that can effectively regulate both macro-economy and micro-economy. Firstly, interest rate and prices. Secondly, interest rate and savings. Thirdly, interest rate and investments. Monetary policy influences the economic activities by means of interest rate is the opinion of Keynes school, to which western economists have always attached great importance and which is considered as one of the most important transmission channels. Keynes argues that money supply breaks the balance of asset market, and through market mechanism, the corresponding changes of interest rate resumes the balance of asset market. Meanwhile the changes of interest rate leads to investment changes through capital cost effect, and then leads to greater changes of social expenditure by means of multiplier effect, and finally affect output and price level.At the early stage of New China, due to factors such as war, inflation was very serious. Therefore, the interest rate took anti-inflation as its major goal, and adopted high interest rate policy.From March, 1950, the PBC lowered the interest rate five times so as to promote the development of industry and commerce.From 1953, together with the start of the first five-year plan of national economy, the PBC lowered interest rate 6 times. In 1971, the one-year deposit rate lowered to 3.24%, the lowest since the founding of New China.1979-1995 was a high interest rate policy period. During the 16 years, the benchmark deposit and lending rates reached 11.34% and 11.52% respectively, and the average deposit and lending rates reached a relatively high level of 7.23% and 9.52%. After the Tenth Plenary Session, China began to focus on economic development. In order to raise construction funds and stabilize price level, the PBC raised deposit rates 8 times. In 1978, China began Reform and Opening up, the focus of government work shifted to economic development, and the total social investment grew quickly. At the same time, the government implemented expansionary monetary policy; the growth of money supply and bank credit grew from 9.7% and 10.2% in 1978 to 25.5% and 18.3% in 1980. But from 1984, because the government undertook too much basic construction work, currency issue got out of control, and social fixed assets scale expanded greatly, the investment growth from 1983 to 1985 reached 16.2%,28.2% and 38.8%。1990-1992 was the first interest rate decrease period of China's interest rate policy since Reform and Opening up. So as to handle economic weakness, from April, 1990, the PBC lowered deposit and lending rates 3 times; the one-year deposit rate lowered from 11.34% in 1989 to 7.56% in 1991, and the one-year lending rate from 11.34% in 1989 to 8.64% in 1991。Stimulated by Deng Xiaoping's"Southern Tour Speech", the national economy rapidly warmed up; social fixed assets scale expanded dramatically; on the basis of a 44% growth in 1992, investment created a historical record of 62% growth in 1993.Starting from 1998, China's economy entered a 13-year long low interest rate period, during which the benchmark deposit rate remained on a low level of between 2% and 4%; the average deposit and lending rates were 3.2% and 6.5%. Influenced by the 1997 economic crisis of Northeastern Asia, China's economy suffered from deflation and sluggish growth; 3 years out of 5, the inflation rate was negative, and the average inflation rate was -0.37%. From 2003, investment scale of national fixed assets expanded again, and investment growth surged from 6.9% in 2002 to 27.7% in 2003 and 26.8% in 2004. In order to solve the serious economic problems such as overheating of economy, raising of prices and bubbles of assets market, the PBC raised the benchmark deposit and lending rates 10 times from October, 2004; the one-year deposit and lending rates raised from 1.98% and 5.31% at the beginning of 2004 to 4.14% and 7.47% at the end of 2007.Due to the influence of the global financial crisis in 2008, our economic growth began to slow down at the end of 2008; the growth of GDP lowered from 14.2% in 2007 to 9.6% in 2008 and 9.1% in 2009. In order to guarantee economic growth, the PBC lowered interest rate 5 times in the second half of 2008, according to the principle of"treating with distinction and protection coexisting with suppression"; the benchmark deposit and lending rates lowered from 4.14% and 7.47 at the beginning of the year to 2.25% and 5.13% at the end of the year. Meanwhile, the refinancing rate, rediscount rate and deposit reserve ratio were also lowered.As an essential component of monetary policy, interest rate policy has two major policy objectives: to promote economic growth and to maintain stability of prices. The realization of the first objective depends on whether there is a certain linkage between interest rate and output of a country; namely whether interest rate has output effect.In the 19 years from 1990to 2008, China's total investment maintained an extremely rapid growth; the average investment growth was as high as 18%. With a careful view of the trends of and the relationship between interest rate curve and total investment growth rate curve in chart 6, we can find that there is a relatively clear relationship between the actual interest rate (of deposit and lending) and the growth of total investment: that is when the interest rate goes up, the growth of total investment in the same period goes down and vice versa.In the 20 years from 1990 to 2009,China's economy achieved huge success, with the average growth of GDP as high as 9.92%. A careful view of the trends of and the relationship between interest rate curve and GDP growth curve can tell us that a clear relationship exists between actual interest rates (of deposit and lending) and GDP growth rate: that is if the former goes up, the latter in the same period goes down and vice versa. While the relationship between nominal interest rate (no matter of deposit or of lending) and GDP growth is not that obvious.The whole analysis shows that China's interest rate policy has a significant regulation and control function on its economic growth. This means that the Keynesian interest rate policy in China has realized its policy objective--- to promote economic growth through low interest rate and to stabilize economy by means of high interest rate. The transmission channel of interest rate output effect shows that interest rate influences China's GDP growth mainly through influencing investment and consumption. |
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