An Analysis Of The Effect On The Seven Interest Decreases In China

Our countFy inflation rate had been kept on decreasing ever since 1996. The country had softly landed its economy, and a buyer market had been established. But the consumption, investment and the speed of export increase had been kept on gliding, and it caused a downturn in the economy. In order to adjust to the new economic situation, China central bank had reduced its interest rate for seven times according to different economic backgrounds, but the effect on economy was not so obvious in fact as in theoty. This topic applies the JSM model and the theory of interest to studying the mechanism that how the interest policy afftcts on economy. Tiieti anal) es the obstacles to the application of interest rate model to Chinese present economy. Genera/li speaking, there are many problems in the interest structure and the degree of interest in China. On the one hand, tile rigidity of interest structure that was formed during long period did no good for commercial bank.s to run their business, also couldn exactly transmit the policy intention of central bank to commercial banks. On the other hand, being subject to the system of social security and the level of income, the relationship between interest rate, income and effective demand was not so clear. The unstable relationship between lending rate and investment was due to the soft budget of state-owned enterprises. On the basis of studying the problems that exists in the implementation of interest policy, we put forth policy suggestions consist of marketrizing the interest rate, developing the capital market, exerting a relative loose fiscal policy and reforming the social security etc.