Researcher says rate cut not impossible
(Shenzhen Daily/Agencies)
Updated: 2006-02-08 15:41

It is "not impossible" for the government to cut its deposit rate even as it pushes for more interest rate liberalization, said a researcher affiliated with one of the country's four largest State commercial banks.

Allowing for more market-oriented domestic interest rates will help commercial banks and rural credit cooperatives respond more actively to market risks, said Zhao Xinjie, a researcher with the Institute of Finance under the Industrial and Commercial Bank of China.

Zhao, whose views were carried on the opinion page of the China Daily yesterday, said market-oriented interest rates may have a strong impact on banks after China expanded interbank bond transactions, so policymakers may not take significant initiatives this year.

"Of course, it is not impossible that the central bank will cut the base interest rate for bank savings," Zhao wrote.

Zhao argued risks remain in the economy going forward, but didn't elaborate on the idea of a potential rate cut.

China hasn't touched its benchmark one-year lending and deposit rates since late October 2004, when it raised both by 27 basis points as part of efforts to rein in a galloping economy. That was the first increase in the interest paid on savings since July 1993.

Since the government began a series of macroeconomic adjustments in mid-2003, money supply and fixed-asset investment growth have stabilized at sustainable, but still strong, levels.

Zhao appeared to have a more cautionary view on China's economy, which the government worries may still be harmed by overcapacity and potential deflation.

In the open market, the People's Bank of China, the central bank, has been draining money mainly through issuing bills, Zhao said in the article.