What does it mean to collect water and release water?

What does it mean to collect water and release water?

In the field of finance and economics, "water collection" and "water release" are common terms used to describe the degree of tightness of monetary policy. Recently, central banks in many countries and regions around the world have adjusted their monetary policies, triggering widespread discussions. This article will analyze the meaning of these two terms and analyze the current global economic situation based on hot topics in the past 10 days.

1. Definition of water collection and water release

1.collect water: Refers to the central bank shrinking the currency liquidity in the market by raising interest rates, increasing the deposit reserve ratio, and reducing open market operations.

2.Release water: Refers to the central bank injecting more liquidity into the market by cutting interest rates, lowering the deposit reserve ratio, and increasing open market operations.

2. Global monetary policy hot spots in the past 10 days

1.Fed policy trends: The market generally expects that the Federal Reserve will continue to raise interest rates in September, but the rate may be reduced from 75 basis points to 50 basis points.

2.ECB raises interest rates: The European Central Bank announced a 75 basis point interest rate hike on September 8, the largest single rate hike since 1999.

3.China monetary policy: The People's Bank of China announced a 2 percentage point reduction in the foreign exchange deposit reserve ratio for financial institutions, releasing approximately US$19 billion in liquidity.

3. Economic considerations behind policies

1.inflationary pressure: The world's major economies are facing continued inflationary pressure. The U.S. CPI rose by 8.3% year-on-year in August, and the euro zone inflation rate was as high as 9.1%.

2.economic growth: Countries need to find a balance between controlling inflation and maintaining economic growth. China is facing downward economic pressure and has chosen structural easing policies.

3.exchange rate fluctuations: The U.S. dollar continues to strengthen, non-U.S. currencies are generally under pressure, and China's reduction in the foreign exchange deposit reserve ratio will help stabilize the RMB exchange rate.

4. Impact on the market and investors

1.stock market: Expectations of the Federal Reserve’s tightening policy have led to increased volatility in U.S. stocks, and A-shares have been relatively stable supported by domestic easing policies.

2.bond market: Global bond yields have generally risen, with the U.S. 10-year Treasury yield exceeding 3.5%.

3.foreign exchange market: The U.S. dollar index hit a 20-year high, the euro fell below parity against the U.S. dollar, and the RMB exchange rate against the U.S. dollar came under pressure.

4.commodities: Gold prices fell, crude oil price volatility intensified, and industrial metal prices came under pressure.

5. Future Outlook

1.policy differentiation: It is expected that developed economies will continue to tighten monetary policies, and some emerging markets may maintain or turn loose.

2.recession risk: Europe faces a higher risk of recession, and there is uncertainty about the possibility of a soft landing for the U.S. economy.

3.Chinese market: China is expected to continue to implement a prudent monetary policy, maintain reasonably sufficient liquidity, and guard against financial risks.

4.investment strategy: Investors need to pay attention to policy changes and make adjustments to asset allocation. The proportion of defensive asset allocation can be appropriately increased.

To sum up, "collecting water" and "releasing water" are important tools for the central bank to regulate the economy. The current global monetary policy is showing a trend of differentiation. Investors need to pay close attention to policy changes in various countries and adjust investment strategies in a timely manner to cope with the complex and ever-changing market environment.