Hoping to ease financing difficulties for small and private companies by lowering the benchmark interest rate may not be the best idea, said Sheng Songcheng, former director of the Survey and Statistics Department of the People’s Bank of China, China Securities Journal reported.
Sheng said the interest rate cuts that the market is discussing now mainly refer to the benchmark interest rate for deposits and loans, which have not been moved for more than three years.
The demand deposit rate is 0.35% per year and the one-year deposit rate is 1.5% per year. Comparing this with price data, the deposit benchmark interest rate has basically no room for downward adjustment, Sheng said.
Also, the benchmark interest rate for loans in China is not high, between 4.35% and 4.9%.
“My opinion is that the central bank should not give up the benchmark interest rate … Instead, it is better to let the commercial banks adjust the rate themselves,” said Sheng, who believes that in this way, it will help to make the interest rate more market-based, and thus solve financing difficulties for small and private companies.