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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: RealMuLan who wrote (14376)10/30/2004 10:03:18 PM
From: RealMuLan  Read Replies (1) of 116555
 
China Says End to Rate Cap May Allow Broader Lending (Update2)
Oct. 29 (Bloomberg) -- China's central bank said its decision to scrap a cap on lending rates is part of a plan to bring its banks more in line with international standards and give them more freedom to lend.

``By scrapping a limit on the interest rates, we gave greater autonomy to commercial banks to decide which customers to lend to,'' Bai Li, a spokesman at the People's Bank of China, said in an interview. ``With greater autonomy comes greater responsibility.''

The central bank yesterday jolted global financial markets by raising its benchmark one-year lending rate by 0.27 percentage point to 5.58 percent, the first increase in nine years. It also scrapped government rules that forbade the nation's largest banks, led by Industrial & Commercial Bank of China, from charging borrowers more than 1.7 times that rate.

The decision may allow banks to lend more to private businesses and move away from five decades of state-directed lending to unprofitable government companies. The government's end to rate caps, and a crackdown on the black market for loans, may have more impact on the pace of economic growth than the level of benchmark rates, economists including Eddie Wong say.

quote.bloomberg.com
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