What Is a Below Market Interest Rate?

The market interest rate is the interest rate determined by the supply and demand relationship in the capital market. Market interest rates often change due to changes in supply and demand in the capital market. With the market mechanism functioning, due to free competition, the supply and demand of credit funds will gradually balance, and the market interest rate in this state is the "equilibrium interest rate" and the market rate is the official rate. The official rate is The interest rate stipulated by the monetary authority. The monetary authority can be a central bank or a government department with actual financial management functions. The market interest rate generally refers to the London Interbank Offered Rate and the US Federal Funds Rate. Interest rates are also market rates. ^[1]

Market interest rate

The market interest rate is the interest rate determined by the supply and demand relationship in the capital market. Market interest rates often change due to changes in supply and demand in the capital market. Where market mechanisms work, due to

Market rates generally refer to LIBOR (London

in

To predict the rise and fall of interest rates, China should focus on the following factors:

Market interest rates have a significant impact on bond prices. Generally speaking, market interest rates increase and bond prices fall; market interest rates decrease and bond prices tend to rise. The trend of interest rates is affected by many factors.

Macroeconomic situation factors

economic cycle. From the perspective of the economic cycle, after the economy begins to decline, products are slow to sell, profits are reduced, investment is reduced, and the amount of circulating money is increased, which causes interest rates to fall. When the economic recession reached the economic crisis, a large number of companies closed down, the market was depressed, funds were marginal, and interest rates fell to their lowest point. After the economy reaches its lowest point, it will slowly recover. At this time, the commodity will start to sell a certain amount, the market investment will be profitable, and the interest rate will slowly rise. When the economy recovered from the prosperity stage, the production capacity and output of commodities increased sharply, commodity sales were in good condition, enterprises began to make a lot of profits, investment increased greatly, currency became a scarce factor, and interest rates rose to the highest point.

The impact of the latest macroeconomic situation on market interest rates

The macroeconomic situation and the tightness of bank credit are the main factors affecting the activity of private financing. Especially in the context of the declining macro situation, the monetary policy of the central bank has made financial institutions relatively abundant in funds, and the difficulty for enterprises to obtain loans from banks has been relatively reduced, which inevitably reduces the demand for funds from private lending channels.

The data shows that the average interest rate for the 10-day period is 21.73%, that for the January period is 17.07%, that for the March period is 19.08%, that for the 6-month period is 16.45%, that for the 1-year period is 16.81%, The interest rate is 24.36%. Compared with the data released by the private financial street before, the one-year and three-month interest rates of the average interest rate of the micro-loan market have fallen significantly.

GDP growth rate. According to statistics from developed western countries and some emerging market economies, from 1981 to 2000,

Market interest rate

There is a strong positive correlation between GDP growth and interest rates. Prior to 1987, China's GDP growth rate was basically unrelated to interest rates. But after 1988, with the gradual increase of the degree of marketization of the economy, the degree of correlation and interaction between the growth rate of GDP and interest rates became higher and higher, and the direction of change gradually became consistent. price level. The price level reflects the price of the real economy, and the interest rate reflects the price of funds. If the decline in the ex-factory price of industrial products is large, indicating a serious lack of demand, this situation will have a strong constraint on national economic investment, and interest rates will show a downward trend. The decline of other price indexes will form a certain restraint, and interest rates will show an upward trend.

Social average profit margin. Interest, as the value-added part of funds, comes from industry profits. From a historical perspective, due to the development of science and technology and the improvement of the organic composition of capital, the average social profit rate has a downward trend. Therefore, the average social interest rate also shows a trend in the same direction, but this process is very slow, that is, in the short term, the average interest rate has relative stability, and in the long term, it shows a downward trend.

The impact of the international economic and financial situation. With the development of economic and financial globalization, the choice of monetary policy will be increasingly restricted by international economic and financial factors. For example, the "September 11th" incident affected the growth of the US economy and spread to the Chinese economy, becoming one of the factors that contributed to the decline in interest rates.

Effectiveness of the central bank's monetary policy Statutory deposit reserve interest rate. When raising the deposit reserve interest rate, the market interest rate shows an upward trend; conversely, the market interest rate shows a downward trend. At present, in the interbank bond market, the reserve interest rate (1.89%) has become the minimum return on bank funds. Once the bond market yield is lower than 1.89%, investors will not conduct bond business operations.

The central bank's foreign exchange market operations. If the central bank throws out RMB and buys USD, the RMB in circulation will increase and the market interest rate will decrease; otherwise, the market interest rate will increase.

There are two types of open market operations: bond spot transactions and repo transactions. When the central bank continues to buy bonds, the market interest rate will fall; when the central bank continues to sell bonds, the market interest rate will rise. When the central bank continues to carry out the positive repo operation, the interest rate will show an upward trend; when the central bank continues to carry out the reverse repo operation, the interest rate will show a downward trend.

Rediscount rate. Rediscounting refers to commercial banks taking the discounted bills to the central bank to apply for discounted financing again at a rediscount rate. When the central bank raised the rediscount rate, the market interest rate showed an upward trend; when the central bank lowered the rediscount rate, the market interest rate showed a downward trend.

Market factors contribute to the concentration of funds. If the concentration of funds is high and all are concentrated in the hands of large institutions, the demand for bond trading will be relatively small. Once these institutions conduct transactions, they will have a greater impact on market interest rates, and interest rates will then fluctuate. Possible. Conversely, the lower the concentration, the more stable it becomes.

Number of new bonds issued. When the number of bonds issuance is high and the frequency is high, the amount of market currency decreases rapidly, and the market interest rate has an upward trend; when the number of bonds issuance is small and the frequency is low, market funds are loose, and the market interest rate will show a downward trend.

Market interest rate

Issue of shares. The issue of new stocks can cause large fluctuations in repurchase rates because they occupy a certain amount of funds. At this time, some institutions will incorporate funds through positive repurchase, and the demand for funds will increase. Therefore, interest rates may rise.

Credit of the issuer. The higher the credit, the higher the security, the lower the risk, and the smaller the return. Treasury bonds are issued with national credit, with the highest credit and the lowest coupon rate; corporate bonds are corporate credits with the lowest credit, and require higher coupon rates to attract investors.

Interest Tax. Interest income from financial bonds and corporate bonds is subject to a 20% interest tax, while government bonds are tax-free. Therefore, the coupon rate of government bonds is generally lower than corporate bonds.

Liquidity premium. The better the liquidity, the smaller the risk, and the lower the yield of the bond; the lower the liquidity of the bond and the greater the liquidity risk, the higher the rate of return must be used to compensate.

Seasonal factors. Each unit generally pays salaries at the beginning of the month, cash expenditures at the end of the year and on the eve of the Spring Festival are high, and bank funds are tightening. At the end of the year, brokerage firms, funds, and entrusted wealth management will face the situation of year-end settlement and settlement of receivables. Short-term interest rates will have the opportunity to rise. When the currency is withdrawn in the middle of the month and the middle of the year, the funds are often loose, and short-term interest rates tend to decline.