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PBoC defies calls for rates cut

By Graham Earnshaw

SHANGHAI, March 24, Reuter – Pressure is growing on the mainland for a cut in interest rates to boost consumer spending and reduce the financial burden on the country’s debt-ridden state enterprises, official media reports said yesterday.

The State Planning Commission has urged the central bank to reduce interest rates on savings deposits by 1.5 percentage points and that on loans by half a percentage point, the China Daily Business Weekly newspaper reported.

But the chairman of the central bank, Dai Xianglong, has ruled out an interest rate cut for now. He was quoted at the weekend by Shanghai’s Liberation Daily newspaper as saying inflation is still too high to consider a reduction.

A State Planning Commission economist, Xu Hong yuan, said the disadvantages of high interest rates were increasingly pronounced, particularly with regard to state-run firms, most of which operate at a loss or with a small profit margin.

‘The country is already pressed to pare interest rates,” the China Daily Business Weekly quoted him as saying.

He said high interest rates had left enterprises with a severe shortage of working capital and had also caused a headache for the operations of the country’s banks. China’s inflation rate has fallen steadily over the past year to 14.8 per cent last year after a post-1949 high of more than 21 per cent in 1994, and has continued to fall this year.

The president of the People’s Bank of China, Dai, quoted in the Liberation Daily, said it would only be possible to consider a cut in interest rates when inflation fell to about 6.8 per cent. But the paper said that with retail price inflation at about the 7-8 per cent level “a cut in interest rates before too long is not impossible”. REUTER GAE

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