Does Cutting Interest Rates Actually Help the Economy?

The interest rate cut refers to the use of interest rate adjustments by banks to change the financial method of cash flow. When a bank cuts interest rates, the income from depositing funds into the bank decreases. Therefore, a reduction in interest rates will cause funds to flow out of the bank, and deposits will become investment or consumption. As a result, liquidity will increase.

Cut interest rates

Generally speaking, the interest rate cut is a substantial positive for the long-term development of the stock market. According to relevant expert analysis, the following sectors may be affected in the short term:

1.

On September 18, 2007, the interest rate cut was 50 basis points;

On October 31, 2007, the interest rate cut was 25 basis points;

On December 12, 2007, the interest rate cut was 25 basis points;

On January 22, 2008, the interest rate cut was 75 basis points;

On January 31, 2008, the interest rate cut was 50 basis points;

On March 19, 2008, the interest rate cut was 75 basis points;

On May 1, 2008, the interest rate cut was 25 basis points;

Interest rate cut by 25 basis points on July 31, 2019; ^[2]

1. Cut interest rates on the United States

Quantitative easing

Quantitative easing (QE) mainly refers to the adoption of zero interest rate or near zero interest rate policies by the central bank.

The central bank cuts interest rates again, saving 34,000 million mortgages

Following the first interest rate cut in more than two years since November 22, 2014, the central bank again decided on February 28, 2015 that, starting from March 1, the benchmark one-year deposit and loan interest rates were reduced by 0.25 percentage points to 2.5. At the same time, the upper limit of the floating range of deposit interest rates of financial institutions was adjusted from 1.2 times the benchmark deposit rate to 1.3 times. Experts believe that the central bank cut interest rates again only in March, further clarifying that China has entered the channel of interest rate cuts, which is beneficial to the stock market, and the burden of housing loans will be further reduced, but at the same time the people's financial management should adjust their thinking.

Famous economist

According to the central bank's website, the People's Bank of China has decided to reduce the benchmark interest rate for RMB loans and deposits of financial institutions from August 26, 2015 to further reduce corporate financing costs.

Among them, the benchmark one-year loan interest rate of financial institutions was reduced by 0.25 percentage point to 4.6%; the benchmark one-year deposit interest rate was reduced by 0.25 percentage points to 1.75%; other benchmark loans and deposit interest rates and personal housing provident fund deposit and loan interest rates were adjusted accordingly. At the same time, the floating interest rate ceiling for time deposits of more than one year (excluding one year term) has been lifted, and the floating interest rate ceiling of demand deposits and time deposits of less than one year remains unchanged.

Since September 6, 2015, the RMB deposit reserve ratio of financial institutions has been reduced by 0.5 percentage points in order to maintain a reasonable and sufficient liquidity in the banking system and guide the steady and moderate growth of money and credit. At the same time, in order to further enhance the ability of financial institutions to support agriculture, rural areas and farmers and small and micro enterprises, the reserve ratio of rural financial institutions such as county-level rural commercial banks, rural cooperative banks, rural credit cooperatives, and village and township banks was further reduced by 0.5 percentage points. The reserve ratio of financial leasing companies and auto finance companies will be lowered by an additional 3 percentage points to encourage them to play a role in expanding consumption. ^[6]