China has decided not to join the rest of the world in slashing
interest rates.
Responding to rumors that the country is considering an interest
rate cut to inflate its sagging economic growth, central bank chief
Dai Xianglong said on Monday that financial authorities had no
immediate plan to cut interest rates of the Renminbi.
"The did not raise any proposal of an interest rate cut
(recently),'' he said at a working conference in Beijing. "We
believe the rates are at an appropriate level at present.''
This is the first time a major economic official of the central
government commented on the issue since September, when the United
States cut interest rates to reduce the economic impact of the
terrorist attacks. The US move prompted a similar wave of cuts
worldwide.
Supporters of a Renminbi rate cut said it is necessary so that
firms will continue to invest and consumers will continue to
shop.
China's economic growth slid from 8.1 percent during the first
quarter to 7.6 percent during the January-September period and
needs a shot in the arm to stay healthy.
The supporters' voices grew louder when the US rate cut drove the
US interest rate to below that of the Renminbi in October. They
said the Renminbi's higher rates would pressure its value to
appreciate and would put Chinese exporters at a disadvantage.
The US dollar one-year time deposit rate at Chinese banks now
stands at 1.25 percent, while the rate for the yuan is 2.25
percent.
But Governor Dai Xianglong apparently did not buy this
argument.
He
said Monday that the interest rate policies on local and foreign
currencies are not linked.
"Our interest rates for foreign currencies follow those at the
international markets, but the interest changes of Renminbi are
decided according to our needs in macroeconomic adjustment and
control," he said, signaling that policy-makers do not believe
interest rates would be the right weapon to wield at this
moment.
Their answer to the economic slowdown is the continuation of
government spending on infrastructure and measures to increase the
income of the people, which was made clear during a recent economic
working conference of the central government.
Economists in favor of the government's decision said the real
problem for investors is the lack of profitable projects rather
than the cost of borrowing money.
With the social security network still needing building up and
income growth still slow, consumers will be wary even if the yields
they get from banking deposits become less, they said.
(China
Daily December 11, 2001)