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Low rates could discourage financing real economy

(Xinhua)
Updated: 2009-11-20 13:57

Low interest rates, especially the deposit rate, would discourage financial institutions from providing adequate financing to the real economy, Zhou Xiaochuan, governor of the People's Bank of China (PBOC) said Friday.

He told the 2009 Business Week CEO Forum in Beijing that low interest rates would reduce pressure on financial institutions, removing incentives to actively provide financial services to the real economy.

"China has set the interest rate at about 2 percent to press Chinese financial institutions to lend money to real economy for gains and reduce cash stockpiles," he said.

Zhou was referring to the low-interest policies of some countries and regions to fight the lingering economic downturn, said Tan Yaling, an expert with the China Institute for Financial Derivatives at Peking University.

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US Federal Reserve chairman Ben S. Bernanke said last week that US interest rates had remained very low for an extended period and would likely stay that way for some time.

He reaffirmed the Federal Reserve's stance of keeping rates low for an "extended period" to sustain economic growth.

The Federal Reserve has kept its benchmark rate near zero since last December to spur an economic rebound and combat the worst financial crisis since the 1930s.

The central banks of Europe and Japan also said that they would keep their key interest rates at 1 percent and 0.1 percent, respectively.

China's monetary policy should be in line with its long-term economic strategy and focus on the domestic development, said Tan.

The one-year benchmark deposit rate stands at 2.25 percent among Chinese banks. The rate has been unchanged since December last year when China's central bank cut loan and deposit rates by 0.27 percentage points.

In efforts to stimulate the economy following the global financial crisis, the central bank cut the interest rates five times in four months from September to December last year.

US Ambassador to China Jon Huntsman and Nobel Economics Prize laureate Robert A. Mundell attended the forum.