The Chinese government is thinking of creating a mechanism that will guide new interest rates in the country. (Photo : REUTERS)
China is considering the creation of a mechanism that would use a band to guide its interest rates, which was aimed at giving the market a greater say in the financial system, a senior monetary official said at a news conference on Sunday, March 6, China Daily reported.
Yi Gang, vice governor of the People's Bank of China (PBOC), said that they are considering an interest rate corridor that would be formed through the central bank's deposit and lending facilities to commercial banks.
"China needs to improve the interest rate system to enhance the guidance of the market rates and the effectiveness of monetary policy," said Yi, who is also a member of the Chinese People's Political Consultative Conference National Committee. He made the remarks on the sidelines of the ongoing meetings of the country's political advisers and lawmakers.
To guide short-term interest rates, the PBOC would continue to use open-market operations as well as lending and deposit facilities with commercial banks, Yi said.
The idea to adopt an interest-rate corridor reflects on China's efforts to further liberalize interest rates and support the slowing economy through a more effective monetary policy.
In the past, interest rates are managed by the monetary authority through setting up floors and ceilings. But the country has already scrapped the caps on both loan and deposit interest rates, the report said.
Yi said that although China is currently in the initial stages of establishing an interest-rate corridor, the PBOC has to take into account both the qualitative and quantitative targets of its monetary policy.
Yi assured that the value of the renminbi will remain stable against a basket of currencies and continued depreciation has no basis.
PBOC Governor Zhou Xiaochuan said on Sunday, March 7, that China's monetary policy will support the country's ongoing supply-side reform, focusing on the reduction of industrial overcapacity.
"Monetary policy is mainly to manage aggregate demand," Zhou told reporters while attending the meeting of the National People's Congress, the country's top legislature. "If it is done appropriately, it will give more room for supply-side policies."
"China has adopted targeted monetary policy and encouraged different financial structures, which can better serve the reform policies to address the issues of overcapacity reduction, deleveraging and inventory destocking," the governor said.
