The Regulation Mechanism Of The Interest Rate Corridor, International Practice And Its Enlightenment To China

The traditional way of interest rates regulation is open market operation.The central banks influence interest rates through adjusting the money supply,which requires acertain demand for currency.Otherwise,the public will not give up bonds to hold money easily,so central banks' the impact on interest rates cannot reach the expection.In the past three decades,the application of electronic technology in the financial field has reduced the demand for currency,weakening the role of traditional money supply regulation.A new regulation model named interest rate corridor has been developed and welcomed by major developed countries due to its convenience,transparency and efficiency.China has a long history of implementing quantitative monetary policy,through which the basic objectives such as sustaining economic growth and domestic currency stability have been realised.However,from 2012,China's economic growth said farewell to double digits and entered a stage called the "new normal",featured by slower economic growth and structural reform.In this situation,the traditional monetary policy cannot excute accurate fine-tuning,making highlighting the role of interest rates as a monetary policy tool imperative.In 2014,then China's central bank governor Zhou Xiaochuan declared that the future of China's short-term interest rate control will adopt the interest rate corridor model and from 2015 the exploration of setting the Standing Lending Facility(SLT)as the upper limit of China's interest rate corridor began.The main purpose of this paper is to analyze the mechanism and advantages of the interest rate corridor model,summarize the operation of the typical countries as well as relative supporting systems and technical means.This paper gives recommendations on the building of China's interest rate corridor in the future,based on the summary of the favorable and unfavorable factors in our country,which lays a significant foundation for enriching the tool box of our country's monetary policy.The empirical test in this paper found that volatility of short-term market interest rate in China is significantly higher than that in most countries or regions that have implemented the corridor mechanism and the short-term market interest rates in the selected typical countries are more stable afterwards.That is to say,the implementation of interest rate corridor model can reduce the short-term market interest rate fluctuation.Therefore,China is supposed to improve its reserve system,cultivate the benchmark interest rate,guide the commercial banks to establish a more rational management system,improve the central bank's credibility and independence,and conduct relative reforms.