Central Bank May Cut Rate to Boost Loans.

(From Asiainfo Daily China News)

CHINA, August 09, AsiaPort -- China's central bank may cut its interest rate on commercial bank deposits to encourage them to lend more to small and medium businesses and sustain economic growth, bankers and analysts said yesterday. China's small and medium enterprises, important drivers of economic growth, have been starved of capital as banks were afraid of adding to mountains of bad debt and preferred to deposit their spare cash with the central bank, they said. With little room for another broad interest rate cut to stimulate loans, analysts said the People's Bank of China was considering lowering its deposit facility rate of 1.89 percent - possibly as early as in the fourth quarter. "I am afraid the second half economic outlook does not seem very optimistic," said analyst Zhou Li of Guotai Junan Securities. "It is quite possible that the central bank will cut interest rates for bank reserves later this year because we need more engines to power domestic growth," Zhou said. China's economy grew a strong 7.8 percent in the first half of this year, but may slow in the second half as exports still faced an uncertain recovery in global demand and heavy government spending may gradually weaken, economists said. Domestic interest rates are now at their lowest level in more than 50 years following eight cuts since 1996, but corporate and private investment remain sluggish. A cut in the central bank's deposit facility rate, which forms a floor for money market rates by ...