Will interest rate cuts lead to inflation?
The direct cause of inflation is too much money in circulation, and too much money supply corresponds to the fixed quantity of goods and services, which will inevitably lead to currency depreciation, price rise and inflation. But its essence is that the total social supply is less than the total social demand, and the supply-side structure of the country is unbalanced, resulting in inflation.
To cut interest rates is to reduce the deposit in loan prime rate. The main purpose of interest rate reduction is to prevent economic downturn, stabilize employment, stimulate investment and consumption, and promote the increase and stability of total social demand. It will not directly lead to the total social supply being less than the total social demand, which will lead to a general increase in prices.
However, after the interest rate cut, the deposit interest rate dropped, the depositor's deposit income decreased, the depositor's willingness to save decreased, and the non-circulating currency decreased. Lowering the loan interest rate and the cost of bank borrowing will increase the willingness to lend and increase the monetary funds in society. Therefore, in general, interest rate cuts will increase the amount of money in circulation, and sufficient financial liquidity will lead to currency dilution, which will lead to an increase in demand and bring some pressure on price increases.
How to preserve the value of inflation?
Under inflation, the purchasing power of the equivalent currency is weakened and the capital is seriously shrunk. If you want to preserve your value under inflation, you must make your money appreciate faster than the price rises. Generally, the inflation rate can be offset by buying stocks and funds.
In the initial stage of inflation, moderate inflation has a strong boost to the stock market.
Inflation will increase the money supply, which is generally proportional to the stock price, and the increase of money supply will increase the stock price. Moderate inflation can stimulate consumption, which can drive enterprises to expand production and promote the employment of ordinary people, thus forming a virtuous circle and bringing benefits to the whole stock market. At this time, stock trading is more appropriate.
However, when inflation reaches a certain level, it will push up interest rates, thus reducing the money supply and lowering the stock price. High inflation causes high costs for enterprises, which makes it difficult for listed companies to operate and the company's share price falls. At this time, it is better for ordinary investors to withdraw from the stock market.