What does raising interest rates and reducing balance sheet mean?

1. "Raising interest rates and shrinking the balance sheet" refers to raising loan interest rates and shrinking the money supply in monetary policy.

2. When a country's economy grows rapidly, the central bank will raise interest rates to reduce inflationary pressure. This also prevents speculation from unduly inflating stock and real estate prices. Raising interest rates will also increase borrowing costs and reduce demand for consumption and investment.

3. At the same time, the central bank will further control inflation by reducing the money supply, making the funds in the market insufficient to support excessive investment activities.

4. Raising interest rates and shrinking the balance sheet are usually adopted when the economy is overheating to avoid inflation and financial crises. In general, the purpose of raising interest rates and shrinking the balance sheet is to maintain healthy economic growth by adjusting monetary policy.