Analysis of the Impact of Interest Rate Increase on China's Steel Prices

The People's Bank of China announced on the evening of the 5th that since April 6th, 2011, the financial institutions have raised their benchmark interest rates. The one-year benchmark deposit interest rate of financial institutions was raised by 0.25 percentage points. After the adjustment, the one-year deposit interest rate reached 3.25%, and the one-year interest rate reached 6.31%.

This is the fourth time since the Central Bank of China announced the rate increase since last year and it is the second time this year to raise interest rates. Why did you announce a rate hike at such a point in time and what impact would it have on the rate hike? Will the pace of further interest rate hike be terminated? The author first interviewed related parties on the above issues.

Why suddenly raise interest rates again Analysts believe that the central bank's decision to raise interest rates at such a time is intended to cope with price pressures that may hit new highs again.

"The central bank announced that the rate hike was in line with market expectations and that the central bank was responding in advance to possible inflationary pressures." Liu Yanhui, director of the China Economic Assessment Center at the Institute of Finance of the Chinese Academy of Social Sciences, believes that stabilizing prices is an important task for this year's work, and the market It is expected that the price index will again hit a new high in March.

The proliferation of global liquidity brought about by the United States' quantitative easing policy has led to continued rising prices of international commodities, and domestic import inflation pressure is increasing. At the same time, under the combined influence of the rapid growth of domestic economic demand, the generally loose monetary liquidity promotion, and the rising labor costs brought about by the turning point of the population, the pressure of domestic inflation in the first half of this year is still relatively large.

“We expect the price index to rise again in March. At the same time, under the influence of international commodity prices, the price of the PPI (producer price index) will also climb to a relatively high level.” Liu Yuhui said.

In addition, experts pointed out that in the current economic environment, the central bank's frequent interest rate hikes are also based on the consideration of tightening liquidity.

Shen Jianguang, Asia's chief economist at Mizuho Securities, pointed out that the current domestic liquidity is far beyond 2007 to 2008, and the liquidity situation will not change in the short term. This is the reason why the authorities continue to raise interest rates and increase the reserve ratio.

Economist Zhou Qiren, a member of the central bank’s monetary policy committee, commented on the relationship between raising interest rates and liquidity: Theoretically speaking, raising interest rates is like feeding tigers more money to the currency tigers and letting them linger in cages. Logically, as long as the interest rate hike is sufficient, the fierce currency tiger will fall.