Interest rate cuts favor commodity markets or rebound

Following the central bank’s decision on April 20, the central bank announced another rate cut. According to the official website of the People's Bank of China, since May 11, 2015, the benchmark interest rates of financial institutions and deposits have been lowered. The one-year benchmark interest rate of financial institutions will be lowered by 0.25 percentage point to 5.1%; the one-year deposit base rate will be lowered by 0.25 percentage point to 2.25%. At the same time, in conjunction with the promotion of interest rate liberalization reform, the upper limit of the floating range of deposit rates of financial institutions will be determined by deposits. The 1.3 times of the benchmark interest rate is adjusted to 1.5 times; the interest rates of other grades ** and deposit benchmark interest rates and personal housing deposits are adjusted accordingly.

Under the background of declining economic growth, what impact will interest rate cuts have on commodity markets?

In this regard, Wang Jun, president of the Founder Institute of Intermediate Research, said that the interest rate cut in May was a normal policy adjustment for the macroeconomic situation, and the interest rate cut was small. Previously, the central bank cut interest rates twice on November 22, 2014 and March 1, 2015 respectively. Three interest rate cuts in half a year have caused the interest rate to drop by 90 basis points, while the deposit rate has been reduced by 75 basis points. Wang Jun believes that in the context of interest rate cuts, commodities will continue to maintain a cyclical rebound, the stock index ** will continue last week's rally.

The Assistant Director of the Baocheng Institute of Finance believes that after many interest rate cuts, the interest rate for one-year deposits fell to 2.2% at the end of 2008, while the one-year benchmark interest rate fell to 5.1%, compared to the end of 2008. 5.3% lower.

“For bulk commodities, it is currently constrained by the weak growth of the real economy and the lack of effective downstream demand. The decline in the real economy is mainly due to the drop in the rate of return on investment, overcapacity, and insufficient total social demand. With the decline in the rate of return on investment, the government has reduced The original intention of corporate financing costs is good, however, the current slowdown in the cost of financing is mainly due to the impediment of the currency transmission mechanism, that is, the rigid payment has not been broken, including the demand for debt extension due to huge stocks of debt from local governments and government-owned enterprises. The resources of social resources have been squeezed out. Therefore, if it is impossible to break rigid payment and achieve full marketization of interest rates, interest rate cuts and RRR cuts will be constrained by the high cost of debt at the bank, the interest rate spread, and the rigid payment and expulsion.” Assistant Director Indicated.

The assistant director also pointed out that the decline in demographic dividends and the irrational economic structure are the root causes of economic growth. The disappearance of the demographic dividend means higher labor costs and lower social demand. Therefore, for commodities, after the interest rate cuts, a wave of intermediate goods will be launched. Rebound, however, the excess pressure caused by the resumption of production after the rebound has further increased, and the industry has not fully adjusted due to the counter-cyclical policy, which has further prolonged the long-term bear market for commodities, which has led to the trend of commodities rising first and then suppressing them.