NDRC Researcher Says China Should Guide Interest Rates Lower

  • RRR "relatively high", interest rate "not close to zero": Cao
  • Statement published as PBOC signals reluctance to ease

China has a lot of room to guide interest rates lower, according to a researcher at the nation’s top economic planning body.

Financing costs for Chinese companies are still high, and the country should keep liquidity "reasonably loose", Cao Yujin, a researcher at the National Development and Reform Commission, wrote in a commentary published at the commission’s website on Friday. Cao also argued for more equity financing and long-term capital, after the State Council’s statement to guide borrowing costs for companies lower on Monday.

"To maintain reasonably ample liquidity and create a reasonably loose monetary environment is helpful in guiding market rates lower," Cao wrote. "The current reserve requirement ratio is 16.5 percent, and that’s relatively high compared to either historical levels or other major nations. The benchmark deposit rate is also not close to the zero interest-rate bound."

The commentary from the NDRC, the top planner for China’s government, contrasts with the latest signals from the central bank, which has been using liquidity tools rather than broad-brush moves to guide policy. NDRC researchers on Aug. 3 published a call for rate cuts when appropriate, a line that was deleted hours later from the online statement and soon followed by a People’s Bank of China signal it’s not cutting rates any time soon.

"It seems that Chinese regulators agree that they want to reduce financing costs but do not agree on the method of doing so," said Andrew Polk, Beijing-based director of China research at Medley Global Advisors LLC. "It’s the methodology debate that puts NDRC at odds with the PBOC."

— With assistance by Xiaoqing Pi, and Kevin Hamlin

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