China's Implementation Conditions Of Interest Rate Smoothing

Since the 90s of last century, the central banks of the United States and other Western countries were used to utilizing interest rate instruments to achieve macroeconomic balance, the character of which is smoothing. It's proved that the interest rate smoothing model play an essential role in decreasing fluctuations in the economy, maintaining price stability and output. With the advance of China's interest rate market and the improvement of interest rate flexibility, the interest rate instruments play an increasingly important role in the central bank monetary policy formulation and implementation process. Based on analysis of the United States, the European Union and other countries, interest rate smoothing operation will improve the monetary policy system of China.In this paper, on the basis of the interest rate smoothing principle, we obtained the three basic conditions for its implementation, the effectiveness of interest rates regulation and control, public related information of interest rate policy, and independence and learning mechanism of central bank monetary policy operations. At the same time, with China's specific situation analysis, we concluded that the invalidity of the current regulation in China's interest rate in view of control of interest rate and inflexibility in investment. And People's Bank does not have the full sense of the independence of the relevant information because of its low transparency in monetary policy decision-making and implementation. Also the openness of interest rate policy and the learning ability of People's Bank should be strengthened. Therefore, China currently is not able to meet all the conditions of interest rate smoothing. We consider that interest rate smoothing model could adapt to the transition of intermediate target to interest rate. So we propose some recommendations from three basic conditions of interest rate smoothing in order to improve the implementation conditions.