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The marketization reform of interest rates is an important goal for China's reform of finanical system and also an essential part of the finanical system advancement, the central bank, the People's Bank of China (PBOC), said.
The bank will actively continue to push forward the interest rate reform to make the cost of money more market based in line with the goal, it added.
In 2003, the government pledged to steadily push ahead with interest rate reform -- steps including the removal of a ceiling on lending rates and allowing borrowing costs to vary up to a range of 10 percent lower than the benchmark rate.
Market forces are expected to play a more important role in fund allocation, and the government's role will be more clearly defined, Premier Wen Jiabao said at the end of the two-day National Financial Work Conference on January 7.
China "basically ready" to further marketization reform of interest rates
The PBOC will push forward the process while taking international and domestic conditions and other factors into consideration, a statement on the central bank's website said.
Zhou Xiaochuan, PBOC governor, said conditions for pushing forward marketization reform of interest rates should include a fair market competition environment, clients acceptance, and commercial banks willingness to take on pricing risks.
In a note published along with Zhous comments, the bank added China is "basically ready" to carry forward the marketization reform of interest rates.
The fact that China's foreign exchange system and the interest rate formation mechanism are not liberalized impedes the future of the yuan as a global currency and the current financial turbulence may hamper China's interest rate reform, according to Zhou.
Some developed economies have kept interest rates near zero since the outbreak of the financial crisis, whereas China's benchmark one-year lending rate stood at 6.56 percent after the central bank hiked interest rates three times in 2011 to curb inflation.
Pushing the overhaul under such a wide gap would trigger some problems, especially in capital flows, Zhou said. "It is not a very good time to push forward market-oriented interest rates," he said.
Despite its huge financial and capital fluidity, a large number of China's small and medium-sized enterprises have been struggling to survive a funding insufficiency. This has been largely caused by the unreasonable distribution of resources as the result of the country's extensive economic development model and its dysfunctional interest rate facilities.
Savers have had negative returns on their bank deposits for a longest stretch of months in 16 years, leaving Premier Wen Jiabao less scope to cut interest rates to spur growth. Inflation have exceeded the one-year deposit rate for the 23rd straight month in December, when consumer prices rose 4.1 percent, according to the National Statistic Bureaus.
Deposit interest rates that are lower than the rate of inflation and a tightened monetary stance since the end of 2010 have made banks eager to secure deposits and make off-balance-sheet loans by providing trust products to clients.
"Although economic activity is likely to soften further in 2012, inflation will probably remain above the government's comfort zone, making a policy rate increase far more likely than a rate cut in our view," analysts at Credit Suisse Group AG said. |
