A normalized negative interest rate era has arrived

The negative interest rate era may be ushered in normalization - On September 10, the National Bureau of Statistics released economic data showing that the CPI (Consumer Consumer Price Index) rose by 2.0% in August, a record high since August last year. After the central bank launched its fifth interest rate cut since the end of last year on August 26, compared with the current 1.75% deposit benchmark interest rate (one-year period), it means that China has once again ushered in an era of negative real interest rates.
The so-called real interest rate is also the real interest rate return after the inflation index is subtracted. As for the moment, although it is formally calculated that the deposit rate is 1.2 times the floating range, we are still unable to say absolutely enter the negative interest rate era. However, if we combine monetary policy orientation, it can be said that for a considerable period of time in the future. The negative interest rate era will be with us.
The reason for this judgment is that, under the continual bottoming out of China’s real economy, whether it is to stimulate investment or encourage consumption, China’s monetary policy needs to maintain a loose posture, which will be mainly reflected in the form of low interest rates. .
Do not think that after five consecutive interest rate cuts (the current interest rate is already at a new low of nearly 10 years), the central bank has no room to cut interest rates. At any time, we judge whether to continue to cut interest rates. The core criterion is whether the real economy has been boosted within the limits of inflation. In other words, we can also judge whether CPI and PPI (industrial product ex-factory price index) maintain relative equilibrium. There is a correlation between CPI and PPI, and there is delay between them. Compared with the trend of PPI, Can represent the inherent needs of the real economy.
And once again focused on the economic data of August, we regret to find that in the case of CPI hit a new high in a year, the PPI hit a new low in six years (-5.9%), and the difference between CPI and PPI was as high as 7.9 percentage points. The biggest difference in the past 22 years.
CPI and PPI are not relatively balanced, but there is a huge degree of deviation. This shows that under the continuous monetary easing, China's real economy has not only ushered in the trend of stabilization, but its potential is still likely to remain. Will continue. Faced with such a dilemma of the real economy, sustained low interest rates may remain for a long time in the future. It is conservatively estimated that in the next 3-5 years, China's one-year fixed deposit rate will hit 0.5%.
If we say that PPI growth rate > deposit interest rate (one-year fixed deposit) > CPI growth rate, is the normal state of China's economy in a period of rapid growth, then, in China's economy has entered a medium-to-high-speed growth, and continues to bottom out under the steady For a considerable period of time in the future, CPI growth rate > deposit interest rate (one-year deposit) > PPI growth rate will become the new normal. This is because, in the past 30 years, the core of China’s rapid economic growth has been the stimulation of investment, while the stimulus of investment has been supported by a high savings rate. The savings rate is not only based on consumer demand. The low premise is that the market interest rate will be relatively low, and this will inevitably be expressed as PPI growth rate > deposit interest rate (one-year deposit) > CPI growth rate.
Of course, in the past 30 years, there has also been a phenomenon in which the real interest rate is negative (the growth rate of deposit interest rate CPI). However, when China’s economy has clearly entered the medium- and high-speed growth and will enter the medium-speed growth in the future, domestic demand will be driven. It will gradually replace investment and become a new engine for the future growth of China's economy. Under this pattern, the phenomenon that the real interest rate is positive may only be sporadic, and it is impossible to be normal.
In fact, in any economy, the real interest rate is positive during the period of rapid growth, while the real interest rate is negative during the medium-speed growth stage or the medium-low growth stage. This has become the common sense associated with economic growth, Europe, America, etc. The developed economies have experienced the same experience, and the Asian Tigers have experienced the same phenomenon, and it is by no means a phenomenon unique to China’s economic growth.
As long as we have a little economic growth common sense and can calmly examine the current economic situation, we will not have any unnecessary doubts about the fact that our economy has clearly entered the era of negative interest rates. However, in the era of China’s economy clearly entering the negative interest rate, for any individual, this also means that the re-allocation of residents’ wealth will surely enter an accelerated phase, and the securitization characteristics of various manifestations, rather than the materialized features. Will accelerate the appearance. For the financial market's regulatory authorities, under the premise of strengthening supervision, the market-oriented reform of financial markets, including the securities market, will be promoted as soon as possible. This will not only provide a credit basis for individuals in the era of negative interest rates. The investment and wealth management channel, and more efficient and effective to boost the real economy, the two can show a mutually beneficial benign relationship.

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