Central Bank Official: Zero Interest Rate not a Good Choice for China

The People's Bank of China vice governor Yi Gang said that zero or almost zero interest rate is not a good choice for China, considering the country's current situation.

Yi made the remarks at a conference on Chinese economy held in Peking University on Saturday.

According to Yi, zero interest rate policy does not suit China's current condition, citing the factors such as the outstanding saving deposits account for a large portion of China's GDP, rising domestic labor productivity, and banks with limited intermediary services and business structure that needs to be further optimized. Banks could not survive under very low interest rate, Yi said.

He said that the central bank is determined to curb deflation and keep a stable exchange rate for the yuan.

The central bank had cut interest rates five times since last September, lowering the benchmark one-year yuan lending rate to 5.31 percent from 5.58 percent and the one-year yuan deposit rate to 2.25 percent from 2.52 percent.

JP Morgan predicted that February's CPI might post negative growth, saying the central bank should continue to cut rates to reduce enterprises' financing costs.

However, Zhuang Jian, senior economist with Asian Development Bank's China Resident Mission told Xinhua that it was not imperative for the central bank to further lower interest rates as money supply and credit extension had already accelerated.