Recently, banks have been reducing deposit interest rates, which has attracted a lot of attention. So, what impact does this have on us ordinary people?

Speaking of the effects of the interest rate cut, the most direct impact on us is probably the reduction in the interest we receive from banks. This is the most obvious, but in addition to this, the bank's interest rate cut also has a very profound impact on our lives. Today, let's analyze it together.

According to past practices, each interest rate adjustment is initiated by the central bank. However, in the recent "interest rate cut wave" that many banks have experienced, the central bank seems to have taken no action at all, and it is entirely the behavior of the banks themselves. Let's temporarily understand it as an "abnormal interest rate cut."

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So why does this "abnormal interest rate cut" situation occur?

We discussed this issue in detail in our program a few days ago. The main reason is still the recent central bank's reserve requirement ratio reduction, which has released a large amount of funds. At the same time, the stock market, funds, and wealth management markets have been sluggish recently, with a large amount of funds being withdrawn, and banks have money again. In addition, the economic downturn pressure has increased, and the real estate market is not booming, leading to a decrease in people's willingness to borrow.

At this time, banks have a lot of money in hand, but the loan distribution is insufficient. From the bank's perspective, the deposits absorbed back also have to pay interest continuously. In this situation, the lower the interest rate, the better.

So, banks have taken the initiative to cut interest rates.

What impact will the banks' proactive interest rate cuts have on our lives?Firstly, the returns in the financial market will generally trend downward. This is because many stable investment products, such as bond funds and many fixed-income assets or investment products primarily focused on fixed-income assets, are often invested in bank deposits. As the returns on bank deposits decrease, the yields on these investment products will also decline.

Secondly, there may be a potential for inflation. The central bank typically lowers interest rates to stimulate economic growth. Normally, when consumption and investment are weak, the rate of price increase is usually slow. However, after the bank lowers interest rates, since the interest on borrowing for consumption and the interest on savings both decrease, people may be more inclined to consume more rather than save more. At this time, prices may rebound, which could lead to an increase in our cost of living.

Thirdly, loan interest rates will decrease. As we mentioned earlier, banks have a lot of money on hand, and after the deposit interest rate cut, the cost is not high. However, the demand for loans is strong. To quickly issue loans and earn a spread, the only way is to lower the interest rates to achieve the goal of loan distribution.

So, the future interest rate cuts will benefit us by reducing the cost of borrowing, but this benefit is limited to new loans only. For existing loans, the bank's interest rate cuts will not be automatically adjusted. We can only wait for the central bank's LPR loan interest rate adjustment on the 20th of each month, after which our loans might be reduced.

In terms of the overall investment market, the reduction in bank deposit interest rates will increase the liquidity of funds, which will have a certain positive effect on the stock market. For example, the major bull markets in 2009 and 2015 were stimulated to some extent by multiple interest rate cuts by the bank. However, the markets also experienced significant declines afterward.In summary, the adjustment of deposit interest rates is an important regulatory tool for the state and is also a common phenomenon in the process of bank operations after the marketization of interest rates. It will continue to change with the development of the economy. The recent widespread interest rate adjustments by banks are also a normal phenomenon under current market conditions, and there is no need for excessive concern. We just need to adjust our investment strategies in a timely manner according to the current actual situation.

So, what do you think about the collective interest rate cut by banks this time?

We welcome your comments and discussions.

That's all for this episode. If you have any topics you'd like to know more about in the field of financial management, please leave a message for me.