PBoC Zhou defends deposit to lending rate gap

People’s Bank of China (PBoC) Governor Zhou Xiaochuan defended the gap between China’s deposit and lending rates and denies that the constitute a hidden subsidy to banks, the Wall Street Journal reported. China’s one-year benchmark lending rate is 5.31%, compared with a one-year benchmark deposit rate of 2.25%. Beijing has committed to further liberalizing the country’s interest rate system. In 2004 it removed a ceiling on lending rates but maintained a minimum rate banks must charge. Zhou acknowledged that the rate gap in China is wider than in developed countries, but said that the overall policy has benefits. For example, he said that preventing  "overly low interest rates" keeps banks lending, and also encourages firms to seek funding through non-bank channels such as corporate bond issues, which have no minimum interest rate.