China has room to further cut interest rates

By (Xinhua)
Updated: 2009-03-09 18:58

China has room for further interest rate cuts in the face of the global financial crisis, a central bank official said on Monday.

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The benchmark deposit and loan interest rates have been reduced for five times since last September and the room for further adjustment is "smaller but still exists", said Su Ning, vice governor of the People's Bank of China.

There's also "a quite big room for cutting the banks' reserve requirement ratio", Su told Xinhua on the sidelines of the annual sessions of the country's lawmakers and political advisors.

"We still have plenty of space in monetary policy maneuver," said Su, also a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), the top political advisory body.

He said the central bank will better carry out the moderately easy monetary policy "by various means including open market operations, reserve requirement ratio and interest rate adjustment".

China has room to further cut interest rates

To help the Chinese economy ride through the financial crisis, the central bank has slashed the one-year benchmark interest rate for loans by 216 basis points to 5.31 percent and that for deposits by 189 basis points to 2.25 percent.

The current interest rate level remains above the US key interest rate range of zero to 0.25 percent and the European Union's 1.5 percent, both record lows in the two weakening economies.

Meanwhile, the ratio of deposit that the banks are required to set aside was cut four times. Su said the present ratios stand between 13 percent to 15 percent.

China shifted from a tight monetary policy to a moderately easy one last November, in addition to a 4 trillion-yuan ($586 billion) stimulus package, to prop up growth slackened by declining exports and slumping real estate sector.

Su said a favorable lending policy on property market stated Thursday by Premier Wen Jiabao in the government work report is not a further loosening of curbs on second house purchase as some understand.

According to the report, individuals "who meet relevant criteria and apply for bank loans to support the purchase of a second home for personal use" will enjoy similar preferential lending policies that apply to the purchase of first homes.

The "relevant criteria" refer to the rule of allowing people with "smaller-than-average" apartments to buy a second apartment under favorable loan terms, which was already announced last year, hence there's no substantial change in the policy on second home buyers, said Su.

China unveiled a series of stimulus policies for the ailing property industry in December, giving favorable tax policies and loan terms on home sellers and buyers while emphasizing low-income housing.

The government had imposed higher down payment ratios and interest rates on mortgage loans for a second apartment than those for the first one, in a bid to curb runaway property market.

Su noted the central bank has no timetable on the making of a rule for private lending for the time being. He said research work is under way.

He vowed to clamp down on illegal financing but said some private lending is necessary and will be regulated.

The central bank will also encourage commercial banks to support small- and medium-sized enterprises by granting more loans, issuing short-term financing bills and building a credit system for them, said Su.