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PBOC governor talks of loosening controls on lending, deposit rates
By Hu Xiaocen |
April 23, 2012, Monday
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Online Edition
Online Edition
CHINA may take a step further towards interest rate marketization by relaxing controls on lending costs, and then widening the range for deposit rates, the People's Bank of China Governor Zhou Xiaochuan said in an interview with Caijing Magazine published yesterday.
China should move over time to a more market-based financial system, in which prices, especially interest rates, play a bigger role than quantitative restrictions, Andre Meier, a resident representative for the International Monetary Fund, said in Hong Kong today.
Zhou said it is difficult to enact price reforms when inflation is on the rise because market-oriented reforms are likely to spur inflation, leading to dissatisfaction among the public.
"The global financial crisis has yet to calm down, so the external environment still requires more observation," Zhou said. "At the same time, the domestic market faces an economic downturn and inflationary pressures. So the government is waiting for a consensus among officials about the suitable time to act."
The governor also said borrowing costs will be relaxed first as financial institutions have become more capable of market pricing since 1996, when China started to liberalize interbank rates.
Zhou said he is concerned that loosening controls on the deposit rate may lead to a speculative inflow of funds that spur inflation.
"Given the interest-rate gap with other countries, controls on deposit rates can not be relaxed quickly in order to prevent hot money," Zhou said.
The US Federal Reserve has indicated interest rates will stay close to zero through at least late 2014, while the European Central Bank cut its key rate to a record low of 1 percent in December. China's benchmark one-year deposit rate has been 3.5 percent since July.
"The reform is a huge systematic change that requires reasonably ordered arrangements. And during the reform process, resource allocation warrants optimization," the governor said.
China should move over time to a more market-based financial system, in which prices, especially interest rates, play a bigger role than quantitative restrictions, Andre Meier, a resident representative for the International Monetary Fund, said in Hong Kong today.
Zhou said it is difficult to enact price reforms when inflation is on the rise because market-oriented reforms are likely to spur inflation, leading to dissatisfaction among the public.
"The global financial crisis has yet to calm down, so the external environment still requires more observation," Zhou said. "At the same time, the domestic market faces an economic downturn and inflationary pressures. So the government is waiting for a consensus among officials about the suitable time to act."
The governor also said borrowing costs will be relaxed first as financial institutions have become more capable of market pricing since 1996, when China started to liberalize interbank rates.
Zhou said he is concerned that loosening controls on the deposit rate may lead to a speculative inflow of funds that spur inflation.
"Given the interest-rate gap with other countries, controls on deposit rates can not be relaxed quickly in order to prevent hot money," Zhou said.
The US Federal Reserve has indicated interest rates will stay close to zero through at least late 2014, while the European Central Bank cut its key rate to a record low of 1 percent in December. China's benchmark one-year deposit rate has been 3.5 percent since July.
"The reform is a huge systematic change that requires reasonably ordered arrangements. And during the reform process, resource allocation warrants optimization," the governor said.
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