Interest rate affects investment, what does interest rate refer to?

It is the level of the benchmark interest rate issued by the central bank

(1) interest rate decision and the factors affecting it

①Western interest rate decision theory. Western interest rate theory can be divided into three main categories according to its analytical method: marginal productivity interest rate theory, local equilibrium interest rate theory and general equilibrium interest rate theory. The following is a brief introduction.

First, the marginal productivity interest rate theory. Marginal productivity interest rate theory analyzes the decision of interest rate only from the perspective of investment demand. The theory that capital has the characteristics of diminishing marginal returns, that is, other conditions remain unchanged, if you continue to add additional capital, the additional productivity of each unit of capital to diminish, the last increase in that unit of capital productivity is the lowest, the last increase in this unit of capital is called marginal capital, the amount of products produced by the marginal capital for the marginal productivity of capital, the rate of interest is determined by the marginal productivity of capital. The rate of interest is determined by the marginal productivity of capital.

Second, local equilibrium interest rate theory. Partial equilibrium interest rate theory is the use of partial equilibrium analysis of the theory of interest rates. Partial equilibrium analysis assumes that all other factors remain constant and considers only the equilibrium of supply and demand in the commodity or money markets. The more influential partial equilibrium theories of interest rates are the "classical" theory of interest rates and the Keynesian theory of liquidity preference. The "classical" interest rate theory uses savings to represent the supply of borrowed capital and investment to represent the demand for borrowed capital, and considers that the interest rate is determined by the equilibrium between the supply and demand for capital, i.e. the equilibrium between savings and investment. If savings are greater than investment, i.e., the supply of capital is greater than the demand for capital, the interest rate falls; conversely, the interest rate rises. Keynes, on the other hand, believes that the interest rate is determined by the supply and demand for money, the money supply is the total amount of money in a country at a certain moment, which is controlled by the monetary authority; the demand for money is to meet the transaction, prevention and speculation and other motives and the unique desire for money. The demand for money is a homogeneous function of income and an inverse function of the interest rate, and the equilibrium interest rate is the interest rate when the supply of money is equal to the demand for money.

Third, the general equilibrium interest rate theory. General equilibrium interest rate theory uses general equilibrium analysis to study the decision of the interest rate. General equilibrium analysis means that the price of a commodity in society is not only determined by the demand and supply of the commodity, but also depends on the supply and demand conditions and prices of all other commodities and factors of production. Therefore, the interest rate is not determined in a single commodity market or money market, but by the commodity market and money market **** together.

②Western interest rate structure theory. In the real economy, the interest rate is affected by the supply and demand of capital or money, but also by the borrowing period and risk and other factors. According to Western scholars, among the factors determining the interest rates of various financial assets, the term factor is always the most important, so the theory of the term structure of interest rates is the core of the theory of interest rate structure.

The term structure of interest rates refers to the relationship between the interest or income at maturity of the security and the maturity period. This relationship can be four different situations: (a) short-term interest rates are higher than long-term interest rates; (b) long-term and short-term interest rates are the same; (c) short-term interest rates are lower than long-term interest rates; and (d) long-term and short-term interest rates are in fluctuation. Term structure theory is the subject of research is the relationship between short-term and long-term interest rates and the impact of changes in the two and other issues. In the specific analysis, it is divided into three theories: expectation theory, market segmentation theory and preferred interest rate structure theory. They are described below.

First, expectation theory. Expectation theory is the most important theory of interest rate term structure theory, it is believed that the interest rate of any security is related to the expected interest rate of short-term securities. If the short-term interest rate is the same for each year in the future, then the current long-term interest rate is equal to the current short-term interest rate. The yield line is a horizontal line if the short-term interest rate is expected to rise in the future, then the current long-term interest rate will be greater than the current short-term interest rate, and the yield line is an upward sloping curve, if the short-term interest rate is expected to fall in the future, then the current long-term interest rate will be less than the current short-term interest rate, and the yield line is a downward sloping curve.

Second, market segmentation theory. Market segmentation theory divides the market into long-term and short-term markets. From the demand side of the funds, investors needing short-term funds to issue short-term securities; investors needing long-term funds to issue long-term securities, and these long-term and short-term securities cannot be replaced by each other, so the short-term securities market and the long-term securities market are divided from each other. From the viewpoint of the supply side of funds, the different nature of the source of funds so that different financial institutions to limit the borrowing and lending in a specific period of time, so that the short-term interest rate by the short-term funds market to determine the long-term interest rate by the long-term funds market to determine. If there is a lack of short-term funds and an abundance of long-term funds, the short-term interest rate will be higher than the long-term interest rate; if there is a lack of long-term funds and an abundance of short-term funds, the long-term interest rate will be much higher than the short-term interest rate.

Third, the preference theory of interest rate structure. Preference theory that the theory of expectations ignores the avoidance of risk factors is imperfect. Because the interrelationship between different interest rates is partly related to the avoidance of risk factors and partly related to the trend of expectations about future interest rates. Therefore, both expectations and risk avoidance have an important impact on the structure of interest rates and should be combined to improve the theory of interest rate structure.

According to preference theory, in the presence of risk, long-term bonds are more risky than short-term bonds, and long-term interest rates are higher than short-term interest rates, for the following reasons: first, short-term bonds are more liquid than long-term bonds, and the prediction of interest rate changes is more probable and close, and the risk of loss of asset value is less, so liquidity payoffs are low; and second, the financing of long-term funds by short-term funds rollover. In addition to the short-term funds rollover renewal cost is larger, there are rollover renewal may occur when the risk of uncertainty, will make the long-term interest rate than the short-term interest rate is higher; Third, the long-term loan is often to be used in the form of rediscounting bills, but also a certain amount of handling costs. It is not difficult to see that the preferred interest rate structure theory, in essence, the investor's uncertainty risk of capital value of the avoidance factor into the expected interest rate structure theory.

The above western interest rate theory, emphasized some of the factors that play an important role in the interest rate decision. But all have a certain degree of one-sidedness and limitations, can not fully explain the decision of interest rates in real life, especially in the real world does not have a full sense of the market economy. Therefore, to make a more comprehensive description of the decision of the interest rate, but also must be combined with reality, further examination of the actual factors affecting interest rate changes.

3) Factors affecting interest rate changes.

First, the average level of profits. Since interest is part of the average profit, the profit itself becomes the highest limit of interest. Therefore, the interest rate always oscillates up and down between the average rate of profit and zero. And, the interest rate is mainly regulated by the average profit rate. From the reality of our country, this regulatory role can be summarized as, the total level of interest rates to adapt to the affordability of most enterprises. That is to say, the total level of interest rates can not be too high, too high most of the enterprises can not afford; at the same time, the total level of interest rates can not be too low, too low can not play the leverage of interest rates.

Second, the supply and demand of funds. Whether it is Marx's theory of interest or Western economic theory does not deny that the supply and demand for funds to determine the total level of interest rates, in our country, the level of interest rates are still determined by the supply and demand for funds. Because in the market economy, as a financial market commodity "price" - interest rates, and the price of other commodities by the same law of supply and demand constraints, when the supply of funds exceeds the demand, the result of competition between the supply and demand sides will contribute to the interest rate; on the other hand, when the supply exceeds the demand, the result of the competition will inevitably lead to a decline in interest rates.

Third, lending risk. Funds from putting to recover always need a certain time, in the process of lending funds movement, due to the emergence of a variety of unpredictable factors, may lead to a variety of risks, such as the funds can not be fully recovered on schedule the risk of default, due to price increases and the depreciation of the risk of the funds, or the emergence of a more favorable investment opportunities, has been lent out of the funds can not be recovered, the lender to bear the risk of loss of opportunity cost.

In general, the greater the risk, the higher the interest rate requirement. In addition, the economy's cyclical changes caused by changes in risk will also affect the level of interest rates, such as in the crisis phase, the investment risk suddenly became a large increase in interest rates. And in the recovery phase, investment risk began to decrease, interest rates began to decrease.

Fourth, the international economic situation. In terms of the open economy, the international economic situation on the impact of interest rates is mainly reflected in the international interest rates and exchange rates will affect the flow of funds in and out of the country, thus causing changes in domestic interest rates. If the international interest rate level is high, the capital outflow, the domestic capital supply is less than demand, forcing the domestic interest rate rise; Conversely, if the international interest rate level is low, the capital inflow, the domestic capital supply is greater than demand, thus inducing the domestic interest rate to fall. It can be seen that domestic interest rates have a tendency to always converge towards international interest rates. From the perspective of the exchange rate, changes in the exchange rate will also affect changes in interest rates. For example, when the foreign exchange rate rose, the local currency depreciation (such as the exchange rate of the yuan and the U.S. dollar from $ 1 = ￥ 8.5 change to $ 1 = ￥ 8.7), domestic residents of foreign exchange demand will decline, so that the relative abundance of domestic currency, domestic interest rates will tend to stabilize, and in the stabilization of the decline; Conversely, when the foreign exchange rate fell, the local currency appreciation (such as the yuan and the U.S. dollar's exchange rate from ￥ 1 = ￥ 8.7 changes to ￥ 1 = ￥ 8.3), domestic interest rates have always been closer to the international interest rate changes. = ￥ 8.3), the domestic demand for foreign exchange will increase, the supply of local currency in a tight state, thus forcing the domestic market interest rates rise.

Fifth, the national economic policy. As interest rate changes have a great impact on the economy, countries have implemented different degrees of management of interest rates through the form of laws, regulations and policies. Countries tend to intervene in the level of interest rates according to their economic policies and at the same time influence the economy by regulating interest rates. In short, the decision of interest rates and the factors affecting interest rate changes are many and complex, in which the final role is to determine the status of a country's economic activities. Therefore, to analyze a country's interest rate status and change, must be combined with the country's national conditions, taking into account the specific circumstances of the country, distinguish between the different characteristics of separate treatment, can not be generalized.

(2) Summary of the current interest rate situation and analysis of the causes

①The history of the interest rate management system. Since the founding of the country in 1949, China's interest rate basically belongs to the type of control interest rates, manifested in the interest rate by the State Council to formulate, unified management by the People's Bank of China. This management system was established against the background of serious inflation and rampant speculative activities in the early years of the founding of the PRC, and played a positive role in restoring production and realizing socialist transformation in the post-war period. With the establishment of a highly centralized, centrally planned economic management system, the practice of regulating interest rates was further strengthened.

During this period, in order to stabilize the market and promote industrial and agricultural production, China had been practicing a low interest rate policy, characterized by fewer grades, lower levels, smaller spreads, and centralized management authority. This situation did not change until after the implementation of the economic system reform and opening-up policy.

The reform of the interest rate system was also put on the agenda until July 1, 1995, when the reform and opening-up policy began to be implemented in the late 1970s. Bank deposit and lending rates rose from 1.05% and 4.72% in 1978 to 10.98% and 12.06%, at the same time, the type of interest rate gradually increased, the grade is also appropriate subdivided. However, the reform of the interest rate management system has been slow, although the practice of floating interest rates has been gradually implemented since 1982, the pattern of interest rate control has remained unchanged, and the real interest rate decision-making department or the main body of the entire interest rate system is still the central government. It can be said that the current interest rate management system has not undergone a substantial change of subject with the deepening of the reform of the economic and financial system and the expanding proportion of market regulation, and it still belongs to a highly centralized and unified interest rate management system of the state-controlled type. The current interest rate system is still essentially a planned economy model dominated by administrative means, although the introduction of market adjustment means, but the proportion is not large. This planned interest rates and market interest rates coexist in the "dual" pattern is difficult to change in the near future.

②Interest rate level analysis.

First, from the point of view of the deposit rate, the inflation rate has been rising year by year, but the rate of interest on savings has not been able to keep pace with rising prices, the level of real interest rates have fallen, and even sometimes negative, as shown in the table below. This shows that the "price" factor alone, China's interest rate level in the low number of domain operation.

Second, from the point of view of the loan interest rate, the adjustment of the loan interest rate is lower than the same period of rising prices of the means of production. Due to the low level of interest rates, there is a loan interest rate increase, loans instead of increasing the reverse effect.

Third, from the point of view of the deposit and loan spreads, although most years the lending rate is higher than the deposit rate, but the spread is too small, and even far below the level of the bank's capital expense ratio. This suggests that the level of interest rates set by the central bank is also low relative to the deposit and loan spreads.

Fourth, from the point of view of the actual market interest rates. 1993 to 1994, the bank over the track of borrowing funds a large number of "extracorporeal circulation". 1995 to 1996, the funds market disorder, the bank "mismatch" phenomenon is serious. This all shows that China's current interest rates are far below the normal level.

By the above analysis, China's current interest rate level is relatively low, it is difficult to play a normal role as price signals and economic levers.

3 interest rate structure analysis.

First, the internal structure of deposit interest rates. China's deposit interest rate level and its structure after a number of adjustments, so far, in the national scope of the opening of the deposit has 11 types, dozens of grades. Relatively speaking, the long-term deposit interest rates are on the high side, the demand deposit interest rates are on the low side, and the deposits are excessively tilted to long-term deposits. This structure is difficult to guide the bank's liability structure to maintain a reasonable pattern.

Second, the internal structure of lending rates. China's lending rate structure can be divided into benchmark lending rate, statutory lending rate, floating lending rate, preferential lending rate and industry differential lending rate, plus discount lending rate. These kinds of loan interest rates belong to the control of interest rates, its structure can be summarized as a uniform interest rate plus preferential interest rates. From the practical implementation point of view, the gap between the policy lending rate and the general lending rate is getting wider and wider, and the range of preferential interest rates is also getting wider and wider. This structure of lending interest rates makes the already low overall level of interest rates fall much further.

Third, the corresponding structure of deposit and lending rates. The outstanding problem in this regard is that the deposit and loan spread is too small, specifically manifested as follows: first, the interest rate difference between fixed deposits and fixed asset loans is only 1%; second, the professional banks have a lot of funds are raised through financial bonds, the issuance of financial bonds to pay interest rates higher than the same period of the savings interest rate of 1 to 2 percentage points, and bank lending rates can not be fully in accordance with the principle of "high in high out" correspondingly increased; finally, in the implementation of the value of deposits, the implementation of the financial guarantee of the value of the deposits, the interest rate to pay 1 to 2 percent, and bank lending rates can not fully in accordance with the principle of "high in high out" correspondingly increased Finally, in the implementation of deposit preservation measures, the bank loan interest rate does not change, once the inflation rate is higher than the deposit rate, the bank to bear the value of the damage at the same time, but also for the deposit preservation of part of the cost.

This can not be said to be the biggest distortion of the current interest rate structure.

Fourth, the corresponding structure of bank interest rates and other interest rates in the financial market. At present, China's market interest rates mainly include two types of interest rates on various types of bonds and interbank lending rates between financial institutions. Bank deposit rates and financial market assets to get the rate of return compared to the difference is too large, and bank lending rates are also too low from the financial market to raise funds from the cost of the rate. The two "prices" of funds were in parallel and lacked linkages. Specifically, the one-year bank savings deposit rate and loan rate is lower than the enterprise issue 1-year bond rate 2 ~ 3 percentage points; lower than the enterprise 1-year internal capital raising rate 8 ~ 22 percentage points; lower than the private lending rate (1-year) 10 ~ 32 percentage points. The 1-year interbank lending rate is 5 to 20 percentage points lower than the private lending rate. This interest rate structure has led to the flow of funds to the stock, bond, foreign exchange, gold and other markets. Banks are experiencing difficulties in their operations and are incurring heavy losses.

Fifth, the interest rate term structure. Earlier we have discussed the tendency of long-term deposit rates are too high, and in the term structure of the loan interest rate, but also manifested in the long-term capital loan interest rate and liquidity loan interest rate difference is too small, July 1, 1995 after the interest rate adjustment, the difference is even smaller, has less than 1 percentage point.

Overall, the interest rate structure, both in general and in the correspondence between the interest rates concerned, has been characterized by imbalance, distortion and lack of intrinsic linkage mechanism in the many adjustments.

(3) Outlook of future interest rate trend

①From the point of view of the historical stage that China is currently in, it is unlikely that the interest rate will be adjusted upward in the long run. To correctly predict the future direction of interest rates, we must recognize the historical stage of China's economic development. In the current as well as a considerable period of history, China's economic development belongs to a special historical stage. This stage, which constitutes the historical background of China's economic development, is the major premise of all comprehensive analysis. Specifically, this stage is characterized by the transformation and development of the economy, which mainly includes two aspects, namely, the transition of the traditional economy to the modern economy and the transfer of the highly centralized and unified planned economy to the market economy.

China is a large developing country with limited available resources, and although the economy has developed greatly since the reform, it has not completely escaped from the underdeveloped situation of poverty and backwardness. The performance of: a large population, low per capita national income; stagnant agricultural economy, farmers are generally poor; production technology is backward, serious waste of resources; education, housing, health care and other indicators are far behind the developed countries. Therefore, economic development is of "global, strategic and all-embracing significance". At the same time, China is now carrying out market-oriented economic system reform has come to a critical time, deepening the reform of the financial, taxation, financial, foreign trade, investment management system inevitably requires a relatively loose monetary environment. In addition, one of the objectives of the financial system reform itself is to improve the interest rate as a macro-control means of management system. Therefore, in the long run, China's interest rates continue to rise is unlikely. This is because the needs of economic development require the provision of sufficient monetary funds to ensure economic growth and the realization of full employment, and the policy of high interest rates is contrary to this goal. At the same time, high interest rates during the economic transition will increase difficulties in the operating environment of enterprises and will not be conducive to the smooth implementation of reforms in state-owned enterprises and other sectors.

②From the current economic situation, it is difficult to raise interest rates. Since 1992, China's GDP growth rate for four consecutive years remained above double-digit, and the comprehensive national strength has been further strengthened. At the same time, the basic framework of the macro-control system has been initially established, the macroeconomic environment has improved, the entire economy in the fall to maintain rapid growth, especially in the national economy, some of the contradictions, such as inflation, has been significantly alleviated. But at the same time also makes the legal interest rate is relatively high problem is increasingly prominent, which for the full use of macro-control means, in maintaining the balance of the economy on the basis of ensuring sustained and stable growth of the national economy has undoubtedly become a major obstacle.

In addition, according to China's current practice, each upward adjustment of a percentage point of the deposit rate, the bank will have to pay an additional 20 billion or 30 billion yuan of interest, which most of the banks can hardly tolerate. Therefore, from the current economic situation, due to the suppression of inflation and the overall level of interest rates is too high, in a fairly long period of time interest rates are unlikely to adjust upward.

3 from the central bank's monetary policy, interest rates have a downward trend. As a rule, the central bank to determine the level of interest rates based on: price changes, deposit and loan spreads, the supply and demand for funds and the needs of monetary policy.

In recent years, several fine-tuning of interest rates, indeed, in strengthening macroeconomic control and stabilizing the economic order has played a role. With the vigorous efforts taken to curb inflation in 1995, the price index has gradually been lowered, basically reaching the desired goal. But at the same time, the enterprise capital constraints and unemployment and other phenomena are becoming increasingly serious, especially at present China's economy is in the transformation of the economic growth mode of the critical juncture, therefore, in the necessary time to reduce the bank interest rate, especially lending interest rates in order to promote economic development is reasonable.

Since 1996, China's macroeconomic situation has had a more pronounced transformation, the real interest rate has turned from negative interest rates to positive interest rates and more than three percentage points. On the other hand, although most years since the reform and opening up of China's loan increment is greater than the deposit increment, but from 1994 onwards, but the phenomenon of deposit increment is greater than the loan increment. By the first half of 1995, the new deposits of financial institutions were larger than loans by more than 400 billion yuan. The deposit and loan difference is too large, increased the burden of bank operations, expanding the bank's loss, not only is not conducive to the normal function of the bank's financial intermediary function, but also to the state-owned specialized banks in the process of commercialization of the heavy burden of obstacles.

From the perspective of China's economic system reform process, the development and improvement of the capital market will be the focus of future economic work, but at present, the stock market and the current situation of the treasury bond market is not yet ideal. Specifically, the stock market due to the long-term downturn hovering, trading volume plummeted, speculation prevails, which is extremely unfavorable to the firm belief in the transformation of state-owned enterprises shareholding. The treasury bond market, with its small capacity and monolithic structure, is difficult to play an indirect regulatory role in the economy through open market operations. All of these need monetary policy to cooperate and support. And the implementation of low interest rates of monetary policy, not only can promote the development of the stock market, but also can reduce the cost of treasury bond issuance, reduce the central budget revenue and expenditure and debt service pressure, for the improvement of the capital market and even the healthy development of the whole economy is of great significance.

In short, the interest rate as an economic lever, its macro role is mainly to regulate the supply and demand of funds, and interest rates once deviated from the supply and demand of funds, will inevitably lead to an imbalance in the supply and demand of funds, which affects the stability and development of the economy as a whole, in this sense, and combined with the interest rate system of the reality of the situation and the side-effects of the situation of the examination and analysis of the situation, the appropriate downward adjustment of interest rates will be inevitable.

4 Specific analysis of the short-term trend of deposit and lending rates.

First, the deposit rate must be cut.

First of all, the deposits of banks and various financial institutions, especially the savings deposits of urban and rural residents will continue to grow, analyzing from the interest rate policy as the main tool and means of monetary policy, as long as the realistic source of funds is more adequate and steady increase, without major problems, the interest rate downward adjustment of the likelihood of a larger.

Secondly, although the deposit interest rate has been reduced on May 1, 1996, but the current bank savings deposit interest rate is still not low, the average of 10.76% for a fixed term, 9.18% for a one-year period, 10.80% for a three-year period, and 12.06% for a five-year period. Such a high level of interest rates, whether from the international perspective or from the history of our country is rare, if the bank's own interests are taken into account, it is possible and necessary to small or even more frequent downward adjustments in interest rates.

Finally, from the monetary circulation situation, in 1995 the circulation of cash is expected to 150 billion yuan, the actual release of 60 billion yuan, and the first quarter of 1996 before the Spring Festival circulation of cash 259.2 billion yuan has been all back in the cage, is the best one over the years back in the cage. This will have a significant impact on curbing inflation and controlling prices in the future, so it is feasible to moderately fine-tune the deposit rate downwards.

Secondly, from the lending rate, both the total level of downward adjustment or structural downward adjustment, are very necessary.

First of all, the interest rate cut is conducive to ensuring the stable growth of the national economy. Since the latter half of 1993, China's economy has been in a moderately tight environment, fixed asset investment slowed down significantly. In order to stimulate investment, prompting the macro-economy in the aftermath of the tightening, gradually out of the trough, a smooth rebound, reduce the lending rate is the inevitable choice.

Secondly, the interest rate cut can reduce the burden on enterprises. In recent years, the national industrial enterprise capital profit margin of only a little more than 2%, while the lending rate are more than 10%, especially for state-owned enterprises, the number of liquidity required, slow turnover, interest expenses is a major burden. In order to promote enterprises to improve efficiency, reduce losses and stabilize employment, it is necessary to lower interest rates in a timely manner.

Finally, the interest rate cut is conducive to the adjustment of China's economic operation structure." During the "Ninth Five-Year Plan" period, the state will focus on ensuring that agriculture, basic industries and national key construction projects, which requires financial credit to continue to optimize the structure of these industries to implement the policy of merit-based support, which requires a structural downward adjustment of lending rates.