Experts Call for RMB Interest Reduction

Home>>Business

Last updated at: (Beijing Time) Wednesday, November 21, 2001

Experts Call for RMB Interest Reduction

November can be regarded as a worldwide "interest-reduction month": US Federal Reserve Board reduced interest for the 10th time, central banks of Europe lowered the benchmark interest rate, Hong Kong Finance Management Bureau and main banks have announced in succession an interest-cut. People cried out in alarm: A zero interest rate has come!

In the face of this influence, the People's Bank of China recently lowered the interest rate on small foreign exchange saving deposits in domestic Chinese commercial banks. Although this move is beneficial to the stability of the exchange rate of Renminbi (People's Currency), it has, in comparison, caused the virtual "appreciation" of the home currency of Renminbi, posing a greater pressure on an interest rate adjustment. Take US Dollar for example. The adjusted annual interest rate on one-year term US dollar deposits is 1.25 percent, whereas the annual interest rate of one year-term Renminbi deposits is 2.25 percent, 1 percentage point higher than the interest rate of US Dollar. Except for the British pounds, the interest rates on the deposit of other foreign currencies are all lower than that of the home currency of Renminbi. Concerned personages have repeatedly appealed: It's high time for Renminbi to reduce interest rate!

It is due to global economic depression that various countries have reduced interest rate. In the opinion of Yu Rongding, director of the World Economy Research Institute under the Chinese Academy of Social Sciences, the growth of the world economy this year will possibly drop from last year's 4.7 percent to 2.6 percent, approaching the verge of " a recession of growth". In the declining tendency of the global economy, China's economy does maintain a relatively high growth, but from the long-term point of view, it is impossible for it to be free from the influence of the world economy.

According to a report of the State Information Center, due to the slowdown of people's follow-up investment, the investment efficiency is relatively low; it is difficult to raise the income level of rural residents, the income gap between residents have widened, the situation of employment is grim and it is hard to change the situation of export within a short space of time. These problems remain fairly prominent. To deal with the re-emergence of a negative growth in consumer price index in September and the phenomenon of the possibility of the re-appearance of a deflation, related experts of the State Information Center has proposed that if the negative growth continues in October and November, the central bank would consider slightly lowering the interest rate on deposits and loans. Although the stimulating role played by interest reduction in the economy is not very conspicuous, it can play the role of stabilizing the psychological anticipation of investors and consumers.

This year, China has reduced the interest rate on petty foreign exchange deposits four times, after the "September 11" incident, it has further lowered the interest rate two times in succession, exerting a very noticeable role in easing the pressure of the appreciation of Renminbi. The Report on Implementation of the Monetary Policy" published late last month by the People's Bank of China shows that after the "September 11" incident, the global monetary situation is expected to be further relaxed this year, this will possibly exert a downward pressure on the general level of China's interest rate. With China's accession to the WTO, its links with the world economy will become closer in the future. Under the circumstance wherein various countries around the world are lowering interest rate to stimulate the economy, people are more urgently expecting a reduction in the interest rate of Renminbi.

The interest reduction made seven times in a row by the People's Bank between 1996 and 1999 laid a foundation for cross-century market quotations, at this time if the bank can again reduce the interest rate, it would mean a shot in the arm of the inferior securities market. But history will not repeat itself in an oversimplified way.

At present, the People's Bank, the China Securities Regulatory Commission and other related departments have had a deeper understanding of hardships and worries in terms of promoting economic development and preventing financial risk, while increasing the amount of money input, the bank has raised the interest rate on the re-loans of financial institutions, recently it has published the "Circular on Strengthening the Management of initiating banking acceptance bill business in order to prevent illegal funds from flowing into the market for speculation. Under the circumstance in which the funds of financial institutions, enterprises, securities dealers and other organizations are generally withdrawn from circulation at year-end, there will not, as a consequence, be much change in the area of market funds. But in the long run, the lowering of interest rate will reduce the enterprise's cost of funds, improve the macro- and micro-economic environment, thereby improving listed companies' achievements to a certain extent.

By People's Daily Online

Central Bank Lowers Deposit Interest Rates on Certain Foreign Currencies

China to Maintain Stable Exchange Rate