Impact Of The Interest Rate Liberalization On Monetary Policy Transmission Mechanism

When studying the process of interest rate liberalization reform of developed countries, there is no doubt that the rapid advance of interest rate liberalization reform will have great influence on the four transmission channels of monetary policy-credit transmission mechanism, interest rate mechanism, asset price transmission mechanism and exchange rate transmission mechanism.First of all, we have to admit that the credit channel is still the main transmission channel in China. With the deepening of interest rate liberalization reform, the phenomena that bank industry plays the dominant role will no longer appear. The demand of liberal interest rate also expands the scale of shadow banking market which brings great challenge to the monetary policy. The effectiveness of credit channel is weakening. Second, the empirical research shows that during the interest rate marketization reform, the transmission efficiency of market interest rate to the overall economy is still weak. But with the continuous deepening of interest rate reform, improvement of market benchmark interest rate and the strengthening correlation between money market and capital market, the regulation of interest rate to the macroeconomics will be improved and the way of monetary policy regulation will turn to the pricing way. Third, interest rate liberalization, financial disintermediation and the development of capital market will promote together. The pricing change will spur the adjustment of asset held positions and investment decisions as well. The effectiveness of asset price channel will be further enhanced. Finally, the interaction between exchange rate and interest rate plays an important role in the stability of economy. The economy would automatically realize the stability without the interventions from central bank. Then we will put forward some suggestions to further improve the effectiveness of monetary policy.