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Official: Room for interest rate cuts limited

(Xinhua)
Updated: 2009-03-11 17:17

Yi Gang, vice governor of China's central bank, said Tuesday that China still has room to cut interest rates, but such room is "quite limited".

"China still has room to cut interest rates, but not a lot," Yi told Xinhua.

"The room for cuts is quite limited, because a zero interest rate is not the best choice for China at the moment," he said.

Related readings:  Rate cuts depend on China's situation  China may cut interest rates by 81 basis points in 2009 - UBS  China has room to further cut interest rates  Europe, UK cut rates; UK expands money supply

The People's Bank of China, the country's central bank, has cut interest rates five times and reduced required reserve ratio for commercial banks four times since last September.

The one-year benchmark deposit rate now stands at 2.25 percent.

Yi pointed out interest rates of China and the United States are actually almost the same.

The 12-month deposit rate in the US stands at around 2 percent, although its key interest rate, or an inter-bank rate, is zero to 0.25, he explained.

The equivalent inter-bank rate in China is at around 0.8 percent, he added.

China's current rate still has room for manoeuver, Yi said, but if the interest rate falls to zero, there will be no more room for using interest rates to deal with any further world economic downturn.

Su Ning, also vice governor of the central bank, told Xinhua on Monday that China still has plenty of space to manoeuver in its monetary policy.

Su said the room for further adjustment is "smaller but still exists."

"There's a quite a lot of room for cutting the bank's reserve requirement ratio," he added.