MOF reduces interest rate on latest treasury savings bonds to about 2%

The final tranche of treasury savings bonds (electronic) this year began to be issued on Sunday and the issuance will end on November 19, according to a statement on the website of China's Ministry of Finance (MOF). Two types of savings bonds will be issued in this new round, with the interest rate on both the three- and five-year bonds at near 2 percent, marking the fourth time that the rate has been reduced this year.

The three-year bonds, with a maximum issuance of 21.25 billion yuan ($2.96 billion), have an annual interest rate of 1.93 percent, while the interest rate on five-year bonds, which have a maximum issuance amount of 21.26 billion yuan, is at 2 percent. The Global Times learned that the interest rates have been reduced by 20 basis points and 25 basis points compared with the rates in October.

Observers said that the rate reductions align with the trend of China's broad-based interest rate cuts and the recent cut in policy interest rates, including the reserve requirement ratio and the loan prime rate. It is expected that the cuts, as part of supportive fiscal and monetary policies, will be conducive to reducing social financing rates and stimulating private investment, analysts said.

As the interest rate of treasury bonds usually serves as a reference for banks' deposit rates, it is expected that major financial institutions will reduce their posted deposit rates in November, which may prompt people to reconsider their investment decisions and potentially boost their consumption, Wang Peng, an associate research fellow at the Beijing Academy of Social Sciences, told the Global Times on Sunday.

With regard to further reductions in the interest rates of treasury savings bonds, Wang noted that there is a possibility of further decreases next year, though "the magnitude is expected to be smaller than this year."

Analysts stressed that those concrete moves bode well for the stable growth of the world's second-largest economy, as enterprises could utilize those funds, which are raised at lower cost, for investment in such areas as technological upgrades and mass production. This will increase companies' core competitiveness and inject more vitality and impetus into the high-quality development of the Chinese economy.

On Friday, Chinese lawmakers approved a State Council bill on raising the ceiling on local government debt by 6 trillion yuan to replace existing hidden debts, according to a press conference on Friday. The new measure will add a combined 10 trillion yuan to China's debt relief resources.

A number of foreign financial institutions have in recent months voiced optimism about China's economic prospects and markets. For example, Goldman Sachs said in a report on November 4 that it maintained an "overweight" rating on Chinese A-shares and H-shares, and it expects a potential return of about 20 percent for these two markets over the next 12 months.