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China should consider cutting benchmark deposit rates: central bank adviser

SHANGHAI/BEIJING (Reuters) – China’s central bank should consider lowering its benchmark deposit rate to enable banks to reduce lending rates and help small businesses weather the economic fallout from the fast-spreading coronavirus, a central bank advisor said.

Chinese policymakers, who have already taken some measures to shore up the economy since the outbreak of the virus, are expected to roll out more stimulus measures, including more fiscal spending and interest rate cuts.

“The losses caused by the epidemic may exceed imagination,” Ma Jun said in remarks made on Friday and published on Monday on China Wealth Management 50 Forum (CWM50), an academic think tank’s official WeChat account.

“We should establish a loss-sharing mechanism for stakeholders to prevent excessive concentration of losses in small and medium-sized enterprises that could lead to serious unemployment and social instability,” Ma said.

The spread of coronavirus in China is expected to have a devastating impact on first-quarter growth in the world’s second-biggest economy.

Ma said the central bank could lower benchmark deposit rates in order to create more room for commercial banks to reduce lending rates for companies to weather the difficult conditions.

Banks should give help to relieve the debt burden on firms in specific industries hit by the fallout from the virus, and lower lending rates for them, Ma said.

The central bank has since early 2018 repeatedly cut banks’ reserve requirement ratios (RRR) to spur bank lending. It has lowered its new benchmark lending rate – the loan prime rate (LPR) – by a total of 16 basis points since last August to 4.15%.

The central bank has kept its benchmark deposit rates unchanged since October 2015. The one-year benchmark deposit rate now stands at 1.5%.

Ma said the government should also lift its budget deficit ratio, increase tax relief and subsidies for small firms, while big state firms should bear some costs, such as rental, transport, water and electricity and telecommunications costs.

(Reporting by Winni Zhou in Shanghai, Zhang Lusha and Kevin Yao in Beijing; Editing by Alex Richardson and Susan Fenton)