Chen Daofu, an economist from the Development Research Center of the State Council, suggested that the interest rate could be further reduced, and the reserve requirement ratio be lowered once again, reported China Securities Journal today.
The central bank has lowered the interest rate and reserve requirement ratio several times this year. Chen said the central bank can move "one-step to the position"—the rate reduction scale can be extended. Deflation is a risk under the climate of world economic recession, and interest rate reductions is a better choice.
The central bank lowered the interest rate by 0.27 percent in each of the two recent adjustments. Such fine adjustments offer advantages: on one side, the market is informed that monetary policy may be loosened and the markets have enough time to adapt to the change; on the other hand, the central bank has more flexibility to adjust its monetary policy as the economic situation changes.
Chen analyzed that once the reserve requirement ratio is lowered again, liquidity in the banking system can be increased, credit volume may also rise, and liquidity may flow to the currency and securities markets, thus providing necessary support for a proactive fiscal policy. Direct financing of the market can also be promoted, and more market funds can be diverted to the real economy.
For more details, please read the full story in Chinese. (http://paper.cs.com.cn/html/2008-11/14/content_19100543.htm)
(China.org.cn November 14, 2008)
