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The impact of the U.S. interest rate hike on China

We know that the Federal Reserve forexrebatesbrokers the central bank of the United States, but also the worlds central bank U.S. financial institutions that can take deposits need to open their own reserve accounts at the Federal Reserve, the Federal Reserve set a deposit reserve ratio is simply understood that the Federal Reserve set a red line for banks, the money in the bank can not be less than the deposit, that is, if you absorb to 10 dollars of deposits, at least in the bank to This value varies from country to country, but is basically not much different If one of the banks can not stay the money to the red line, we must find a way to make up for it as soon as possible, generally through short-term borrowing from banks with sufficient funds to supplement this short-term borrowing forex discount brokers is called the federal funds rate Federal funds rate is the inter-bank lending rate, the United States forexdiscountbrokers rate increase is added to this rate But this interest rate is not ordered by the Federal Reserve to the banks, but through the operation of the Federal Reserve, so that this interest rate passively reach the target If the interest rate is to be increased, the Federal Reserve cashback forex sell bonds to the banks to recover the dollar, the bank reserves do not meet the target, we must find a way to make up as soon as possible, but at the same time there are a number of banks are not enough money, then the interbank lending rate is high, while the flow of dollars on the market Also less, which is the consequence of the interest rate hike, is to reduce the flow of dollars in the market, which is the meaning of the U.S. interest rate hike First, cross-border capital may again outflow from the third quarter of this year, Chinas cross-border capital flow situation has improved the non-reserve nature of the financial account by reversing the surplus, bank settlements forexbonusrebate sales of foreign exchange and foreign-related receipts and payments also all turned into a surplus, the closing exchange rate also exceeded the selling exchange rate after the Fed raised interest rates again, overlaid with Second, there is still pressure on the short-term adjustment of the RMB According to the content of the interest rate parity theory, the difference between the interest rates of two countries is equal to the difference between the forward exchange rate and the spot exchange rate In the case of the difference between the interest rates of two countries, funds will flow to the high interest rate This is the traditional interest rate parity theory, which does not take into account the role of expectations. In fact, interest rate adjustment expectations also affect this channel of action, when a currency is expected to appreciate will break the original exchange rate equilibrium pattern, funds will also flow to the country, resulting in the spot exchange rate of the currency to rise Since December 2015 Since the U.S. restarted its interest rate hike policy, the Fed has released consecutive interest rate hike signals, and the market has greater expectations for the Feds interest rate hike At the same time, Chinas economy has entered a new normal, and the downward pressure on the economy has increased, and the market is easily frightened Although the RMB exchange rate has rebounded during the year, depreciation expectations still exist, and volatility may increase in the short term due to the impact of unexpected events Third, domestic capital market prices are under pressure The Feds interest rate hike will lead to Chinas cross-border capital outflows intensify, a large proportion of cross-border capital flows are hot money and short-term liquid capital, mainly for the purpose of arbitrage speculation This part of the capital inflow into China generally does not enter the real economy, but into the stock market, the property market and other virtual economy, pushing up asset prices, bringing inflationary pressure In the context of capital outflows and strengthening the regulation of the real estate market, this part of cross-border capital will take the lead in outflow Fourth, the cost of dollar financing for domestic enterprises and the burden of stock debt increased the Federal Reserve interest rate hike led to an upward shift in the global market interest rate pivot, while the Feds monetary normalization will lead to a tightening of dollar liquidity in the medium term, the cost of foreign dollar liabilities of domestic enterprises rose favorable aspects: 1. 2、It is conducive to reducing the cost of energy and resource imports, increasing the number of imports and easing the pressure on domestic energy and resources 3、It is conducive to creating an environment for the RMB to go global and accelerating the internationalization of the RMB Negative aspects: 1、It increases the uncertainty of global economic recovery and affects the peripheral environment of Chinas economic development 2、It may lead to regional financial turmoil and even crisis In the long run, it will push the exchange rate of the US dollar to strengthen and put pressure on the RMB to depreciate. 4. it will prompt the return of international capital to the US and affect Chinas attraction of foreign direct investment (FDI). 5. it will increase the pressure on Chinas exports to markets outside the US. 6. it will increase the burden of US dollar-denominated debts of domestic enterprises and increase the bad debt rate of banks. 7. it will increase the prices of domestic industrial production materials and increase the risk of deflation. Downward pressure, the risk of deflation increases
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