The Impacts Of China's Monetary Policy Adjustment On Capital Market

Monetary policy is the general objective for Central Bank to achieve the macroeconomic target to regulate the money supply and interest rate levels, which can affect the policy and strategy of Macroeconomics. Before the 1990s, monetary policy of our country conducts substantial economy through the bank system .However, since the middle of 1990s; China's capital market develops quickly. The currency no longer goes into the commodity market to purchase merchandise in great quantities. More and more currencies have been taken in by the capital market, which causes profound change on the monetary policy transmission mechanism. Therefore, under the new transmission mechanism, the interactive relations between capital market and monetary policies have become an important research topic of the modern financial theories and positive research.Currently, the monetary policy of all countries still pays little attention to the capital market because the transmission relations between the monetary policy and the capital market haven't been solved in theory. In the theories field, the common agreement is not reached on the question whether monetary policy affects capital market directly or security price indirectly by other economic variables. These determine the complexity of monetary policy transmission mechanism and monetary policy operation.Our country's capital market is still at the beginning phase of development regardless of its scale and mature degree. The speculating atmosphere is thick. When monetary policy has good news to capital market, funds of enterprise and resident enter the stock market in great quantities. However, when there is no good news, stock price declines quickly again. So China's capital market presents the typical phenomenon of funds market and policy market. In this paper, the writer applies the method of normal analysis and positive analysis to studying the interactive relations between stock market and monetary policy from two aspects of theory and practice.According to economics principle, the main channels that monetary policy influences capital market include money supply, interest rate and the funds management policy. The increasing of money supply will lead to more expenditure of investment and price of stock will rise also, so money supply is positively related to capital market. Interest rate is a sensitive index of capital market. Its change will prompt the changes of capital cost and it is an inverse ratio relation, so interest rate is negatively related to capital market. The development of capital market needs fund support. Credit capital inflow to the stock market is the main problem in the funds management policy. The right amount credit fund inflow to capital market will influence...