Abstract: Yi Gang, a vice governor of the Central Bank, said at a recent forum that China will continue to ensure liquidity to the market, while dismissing expectations of further cuts in interest rates after the Federal Reserve lowered its benchmark rate.

Yi Gang, a vice governor of the Central Bank, said at a recent forum that China will continue to ensure liquidity to the market, while dismissing expectations of further cuts in interest rates after the Federal Reserve lowered its benchmark rate.

As the Fed recently lowered its target for the overnight federal funds rate to a range of zero to 0.25 percent, it was widely anticipated that China would have the option to further cut its rate.

"Let us not forget that China's benchmark interest rate is different from the America's," Yi explained. "China's is one-year deposit rate while America's is an overnight funds rate. Currently, America's one-year deposit rate is still at about 2 percent, almost on par with China's. Moreover, the European Central Bank's target rate as well as merchant banks' deposit and lending rates are all higher than China's at present."

Yi Gang also said the credit market was still very active in November and December, signaling that liquidity is not drying up and financial institutions are still willing to lend.

Judging from the showing on the balance sheets of individuals, companies, financial institutions and government, prospects for the Chinese economy are still good, according to the monetary policy maker.

A survey indicated that most sectors and companies will complete inventory adjustments at the end of the first quarter, saying that the Chinese economy will begin to pick up in the second or third quarter of this year.

(China.org.cn by He Shan, January 12, 2009)