A few days ago, I wrote an analysis of the European interest rate decision and the speech at the press conference. The general interpretation is like this. I have not explained some of the content, so I have dealt with it briefly. This time, I will talk about the interest rate separately. .
Taking the United States as an example, there are eight interest rate resolutions every year, and the FOMC (Federal Open Market Committee) will hold a meeting to give an appropriate monetary policy based on the current economic situation so that the future economy can achieve an ideal situation.
Combining with the data explained in the previous article, generally speaking, developed countries hope that their GDP will be around 3% and their inflation rate will be around 2%. Therefore, the purpose of the FOMC’s interest rate resolution is also to make their own country’s data reach an ideal state.
Adjusting interest rates has a relatively long impact on a country, so attention is also high. However, raising and lowering interest rates will not necessarily lead to currency appreciation or depreciation. This year, the United States cut interest rates twice and the dollar appreciated twice. Last year, the UK raised interest rates and the pound depreciated. The most important thing is to pay attention to the meaning behind the interest rate hikes and cuts. And everyone needs to pay attention to the fact that the higher the interest rate in a country, the better. Each country has its own situation and the best is the one that suits it.
The interest rate hikes and cuts that you usually see are called the federal funds benchmark interest rate , which is the overnight lending rate (the relevant content is introduced in detail in "Macroeconomics" and "Monetary Finance" . to read a book).
Commercial banks, investment banks, and various financial institutions need to pay the central bank a certain percentage of their total assets to prevent a run on the bank (emmm, well, I will find time to talk to you about commercial banks and The difference between investment banks), this money is called the deposit reserve, and the ratio of the deposit reserve to the bank's own assets is called the deposit reserve ratio. The central bank is a bank within a bank, and it does not generate any profits by itself. It exists to do policy formulation, supervision, and rescue work for these banks and financial institutions.
Therefore, the central bank will stipulate to banks that they must reach the statutory deposit reserve ratio. However, some banks may have a deposit reserve ratio lower than the statutory deposit reserve ratio on a certain day because of loans and other businesses, so they thought of a way-find another bank to borrow a little money and pay it back in two days. Among them, the bank lends its own money to another bank, which is called interbank lending. Since the term is very short, as short as half a day, as long as one or two weeks, this interest rate is called overnight lending rate.
And raising interest rates and cutting interest rates is to adjust the overnight lending rate, which is also one of the most commonly used methods for the government to intervene in the money market. As the interest rate is raised, the cost of bank lending will increase, and this interest rate is often used, then the bank will consider whether to use other methods to make money to balance its own balance of payments or realize profitability, so it will increase loan interest rates and other other interest rates. It can be roughly understood that as long as the overnight lending rate is adjusted, other interest rates will rise or fall along with it.
Still take the loan interest rate as an example. If the interest rate is raised and the overnight lending rate is raised, then the loan interest rate will rise, and the cost that entrepreneurs or consumers need to pay for loans will increase. Some people will choose not to take out loans, but to save their money. If you go to the bank, the amount of money on the market will decrease. In the case of a constant demand in the short term, the real value that each dollar can buy increases, so the local currency appreciates.
Generally speaking, this is the reason why raising interest rates leads to currency appreciation, but in fact, sometimes you can't think in this way.
From the perspective of foreign exchange, the appreciation and depreciation of the currency mainly depends on whether the economic situation of the country is getting better or worse. The interest rate hike in the UK last year was a special measure taken under the already bad economic environment. There is a feeling of going against the sky, so in essence, the UK economy is going bad, even if it increases However, everyone refused to admit it, and still would not choose to be optimistic about the pound, so they sold it one after another, and finally the pound fell.
The interest rate cut in the United States this year is to unload the burden before crushing the camel, to give market confidence and liquidity, and to cooperate with other policies to make the dollar, which has fallen slightly, rise again. Interest rate cuts are still bullish on the dollar.
Now that I have talked about it here, I will talk about it a little deeper. It doesn’t matter if you don’t understand this paragraph. It will be easy to supplement the basic knowledge in the future.
A country needs a little inflation, but not as high as possible. The premise of raising interest rates is that inflation is stable above 2%. In order to avoid hyperinflation and cool down the overheated market, most interest rate hikes are implemented according to this principle. Yes, it's not that the central bank governor can add it if he wants to. All policies, including monetary policy and fiscal policy, are adjusted in order to achieve the best economic prospects in the current economic environment. GDP is released every three months, and what must be done within three months to make the three-month Finally, the published value reaches the desired number, rather than waiting. The interest rate hikes and rate cuts we have seen are only the final decision. In fact, what caused the central bank to decide to raise interest rates and lower interest rates is determined by the economic situation that has been reflected before it raises. Monetary policy, meeting minutes and more so it is. We saw that when he has a policy, the market has already come out, not to mention that there is still a time lag of half a month to a month before the actual implementation and publication of the minutes of the monetary policy meeting. It can be said that when we see these things, they are the effect, not the cause. But basically we can still use monetary policy interest rate resolutions to judge how currency pairs operate, because the development of things takes time, and it is impossible for the economy to undergo earth-shaking changes within a month. The bad news is that fundamental analysts who only look at interest rates to determine monetary policy cannot get the initial profit and can only follow the fundamentals to eat soup, but the good news is that there is plenty of soup. Still the same sentence, fundamental analysis needs to take into account the cause and effect, and after the fundamental analysis is done, you can predict what the monetary policy will say in the next interest rate decision, and then wait for the real government speech to see if the prediction is accurate , The road is long and the road is long, I still need to read books carefully.
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