Setting Exchange Rates: China’s banks warned to be prudent

Country’s central bank warns other banks to be prudent and alert to credit risks.

BEIJING: Chinese banks took control of setting loan interest rates on Saturday as the country’s central bank warned them to be prudent and alert to credit risks. The People’s Bank of China announced Friday that it was lifting controls on loan interest rates effective Saturday, framing the move as a way to lower financing costs for businesses and support China’s long-term economic restructuring. In a statement on its website on Saturday, the central bank said that loan interest rates should be set “on the basis of market supply and demand”, while taking account of “credit risk”. Under the reform, the central bank removed a lower limit on lending rates, which had previously been set at 70% of its fixed benchmark rate, but clarified it would not adjust restrictions on deposit and mortgage rate. The move to give banks control of loan interest rates comes as growth in the world’s second-largest economy has slowed this year, setting off alarm bells among analysts about prospects for the rest of 2013.

Published in The Express Tribune, June 21^st, 2013.

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