SCIO briefing on increasing special local government bonds and strengthening inclusive financial support for micro, small and medium-sized enterprises
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E-mail China SCIO, April 7, 2020
Nihon Keizai Shimbun:
Since last August, China's loan prime rate (LPR) has dropped by 26 basis points, which has led to a decreased bank spread. Some banks are calling for a lower benchmark deposit interest rate. What is your opinion?
Liu Guoqiang:
It's true that the decline in LPR results in a decreasing bank spread. But we will take measures, such as providing low-cost funds from the central bank and maintaining reasonably sufficient liquidity in the financial market, to greatly reduce banks' financing costs in the market. At the same time, we are also considering increasing support for banks, especially small and medium-sized banks. The deposit interest rate is a tool that can be used, but many things have to be taken into account before we use it, since it plays a special role as an anchor in the interest rate system. For example, we need to consider price. The Consumer Price Index (CPI) is now 5.3 percent, significantly higher than the one-year deposit interest rate, which is 1.5 percent. Other considerations include economic growth, as well as the exchange rate. With a lower interest rate, we may face greater pressure from currency devaluation. In particular, the deposit interest rate has a more direct impact on ordinary people. To apply a negative deposit interest rate, sufficient evaluation, including ordinary people's opinions, is required. To sum up, it is a tool that can be used, given that its use is fully evaluated.
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