China eyes easier rates to boost demand

Beijing:  China's central bank chief said conditions are ripe for Beijing to liberalise interest rates, a move analysts say would boost domestic demand as the nation's exports are hit by overseas turmoil.

Beijing has cut the nation's growth target for 2012 as its export-driven economy slows, and a key policy focus this year will be on expanding demand at home.

In an article published in China Finance — a magazine backed by the People's Bank of China — Zhou Xiaochuan said "the conditions to further push forward with interest rate liberalisation are basically there."

"The central bank will…continue to actively push for this," he wrote in the magazine, which was distributed yesterday.

China's central bank sets interest rates, keeping them artificially low and giving policymakers control over the way they can allocate capital.

Analysts say if China relinquishes control over the rates and lets the market take over, banks would have to start competing against each other to attract customers.

"There is a lot of evid-ence to suggest Chinese savers are target savers, and save with a target in mind," said Alistair Thornton, China analyst at IHS Global Insight.

Higher returns on their deposits would allow them to save less and still meet their targets — which would free up more money for consumption, he said.