PBOC Cuts Forex Interest Rate

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Last updated at: (Beijing Time) Wednesday, July 02, 2003

PBOC Cuts Forex Interest Rate

The People's Bank of China cut the interest rates on foreign currency bank deposits for the first time in more than six months.

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The People's Bank of China cut the interest rates on foreign currency bank deposits for the first time in more than six months.

Beginning today, the rate on one-year US dollar deposits has been reduced to 0.5625 percent, down 0.25 percentage points from 0.8125 percent.

Interest rates on four other currencies - euro, Hong Kong dollars, British pound and Swiss franc - have also been cut.

The move follows a quarter of a percentage point cut last week by the US Federal Reserve on overnight loans between banks to 1 percent.

At the end of May, Chinese banks had US$149.7 billion in foreign-currency deposits.

The value of new forex bank deposits attracted by local banks slid sharply in the first five months of this year due to the lower interest rates than the local currency, said the PBOC's Shanghai Branch.

Local banks attracted forex bank deposits worth US$725 million during the January-May period, a decrease of US$300 million from the same period a year earlier.

Shanghai attracted US$155 million in individual forex deposits during the period, down US$522 million from a year earlier, the central bank said.

By comparison, the one-year interest rate on Renminbi-denominated bank deposits currently stands at 1.98 percent.

During the first five months of this year, Renminbi deposits worth 111.65 billion yuan (US$13.45 billion) were attracted, a rise of 47.58 billion yuan from a year earlier.

Meanwhile, researchers said the foreign currency exchange rates are unlikely to be influenced by the US Fed's interest rate cuts.

"Due to China's healthy macro-economy and balanced international payments, the nation is capable of keeping the stability of exchange rates," said Zhang Youwen, a Shanghai Academy of Social Sciences economist.

The yuan has been pegged in a narrow band of 8.2760 to 8.2800 per dollar for almost a decade. The currency is freely exchangeable only on the current account, which allows payments for both goods and services.

Elsewhere, the Chinese central bank governor said the Renminbi is unlikely to be revalued in the short term, amid recurring specu-lation that China will allow it to move higher against the dollar.

His comments follow those of US Treasury Secre-tary John Snow who said last week that China should be encouraged to move forward to market-based, flexible exchange rates as the "undervalued" Renminbi has helped Chinese exporters ship cheaper goods to the global markets.

On Wednesday, Zhou Xiaochuan, governor of the Chinese central bank, said he did not see the possibility of a revalued Renminbi in a speech at the annual meeting of world central bankers at the Bank for International Settlements in Basel, Switzerland.

The governor's remarks diminished speculations that freer trading could be allowed within months.

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