Name: Esther Ng Yuen ying
Student Number: 1001410742
Writing Assignment #2 - Version B - China

Dear Mr. Zhou Xiaochuan (The head of China’s central bank),

According to the decision of China’s central bank, your esteemed bank starts cutting the interest rates effectively on Feb 28, 2015. I fully agree with this decision. Why?
First, the lower interest rate helps those financial institutions, mainly commercial banks, can absorb more deposits in the future, thus they can ensure that loans remain relatively stable or even a rapid growth. Also, this reflects that China’s central bank reduce the cost of capital in order to encourage or stimulate more business credits and ease the borrowers pressures from the repayment. Secondly, it expands the upper limit of the deposit rates on its floating range. It also helps depository financial institutions can be more flexible to secure more financial resources, according to their own deposit base and the required deposit target. Moreover, it will not occur the so-called “interest rate’s war”, which means that various financial institutions need to consider their cost-effectiveness to set their deposit interest rates, so they can ensure that profits have existed. Those can ensure that banks and the interbank market due are highly liquid, secure the economic growth would not be stalled, and also this interest rate adjustment plays a good guiding role at the benchmark rate: since it further consolidate that the social cost of financing will reduce, it helps to adjust the economic structure and the transformation and upgrading of the appropriate monetary and financial environment, which can provide and promote economic development and sustainable development in China.
Nevertheless, I think that maybe indicate the beginning of the lower interest rates, the interest rate policies of cutting interest rates will still play a