Few loans on low interest rates | Shanghai Daily

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November 21, 2009

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Few loans on low interest rates

LOW interest rates, especially the deposit rate, would discourage financial institutions from providing adequate financing to the real economy, Zhou Xiaochuan, governor of the People's Bank of China, said yesterday.

He told the 2009 Business Week CEO Forum in Beijing that low interest rates would reduce pressure on financial institutions, removing incentives to actively provide financial services to the real economy.

The forum, which closes today, is also attended by United States Ambassador to China Jon Huntsman and Nobel Economics Prize laureate Robert A. Mundell.

"China has set the interest rate at about 2 percent to press Chinese financial institutions to lend money to the real economy for gains and reduce cash stockpiles," Zhou said.

Zhou was referring to the low-interest policies of some countries and regions to fight the lingering economic downturn, said Tan Yaling, an expert with the China Institute for Financial Derivatives at Peking University.

US Federal Reserve Chairman Ben Bernanke said last week that US interest rates had remained very low for an extended period and would likely stay that way for some time.

He reaffirmed the Fed's stance of keeping rates low for an "extended period" to sustain economic growth.

The Fed has kept its key rate near zero since December last year to spur an economic rebound and combat the worst financial crisis since the 1930s.

The central banks of Europe and Japan also said that they would keep their key interest rates at 1 percent and 0.1 percent, respectively.

China's monetary policy should be in line with its long-term economic strategy and focus on domestic development, said Tan.

The one-year benchmark deposit rate is 2.25 percent among Chinese banks. The rate has been unchanged since December last year when China's central bank cut loan and deposit rates by 0.27 percentage point.

In efforts to stimulate the economy following the global financial crisis, the PBOC cut the interest rates five times in four months from September to December last year.

Lian Ping, chief economist of the Bank of Communications, China's fifth-largest lender, said lowering rates could bring the risk of speculation, as China's loose monetary policy and positive fiscal policy had led to a credit boom this year.

According to the PBOC, a total of 8.92 trillion yuan (US$1.3 trillion) in new loans were pumped into the economy in the first 10 months.



 

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