China's Central Bank Reduces Credit Interest Rate

China's central bank says it will reduce the benchmark loan interest rate and the reserve requirement ratio for commercial banks to ensure a steady and rapid economic growth.

But the deposit interest rate remains unchanged, as experts say that, it is beneficial for the individuals.

CRI Reporter Chen XI has the details.

The central bank of China has announced that China cuts its one-year lending rate by 27 basis points in a bid to spur economic growth. This is the first downward movement since October 2004.

The People's Bank of China said that the ratio of deposit lenders are required to set aside will be down 1 percentage point from Sept. 25.

The reserve requirement ratio would also be reduced by 2 percentage points for local financing institutions in areas badly hit by the May 12 Wenchuan earthquake.

Chief Economist of the Bank of Communications, one of the leading banks in the country, Lian Ping applauds the new financial move.

"The cut of lending rate is primarily to stimulate the investment and production of enterprises, which will also lower their product costs. Meanwhile, from the perspective of monetary policy, it also calls for a more active economic momentum in the country."

However, the country's major lenders will be exempt from the reserve requirement ratio adjustment.

After adjustment, the interest rate for one-year loans in the Chinese currency will be 7.20 percent.

The overall reserve requirement ratio will be 16.5 percent, down from a record 17.5 percent after five consecutive increases this year.

That action would also give small- and mid-sized banks an advantage in extending loans and benefit small enterprises, which were the main customers of those banks and had suffered most in the past quarters.

However, the government still intended to keep liquidity in check as the deposit interest rate would stay the same.

Gao Huiqing is an economist at the State Information Centre, a government think tank in China.

"The unchanged deposit interest rate is to protect the rights and interests of individual depositors. As the actual interest rate remains minus in China, the new move is good for the public under such circumstances."

Experts say that the move is to ensure a steady, rapid and sustained economic development, adding that its effect will appear in the next two to three months and further actions would depend on how the economy reacted.

Chen Xi, CRI News