There is some controversy about whether it is true that the nominal lending rate should be broadly equal to the nominal GDP growth rate. In fact most studies of developed countries suggest that over the medium and long term this is indeed the case. UBS tried to show that this was not applicable to China and did a study several years ago showing that among developing countries this relationship didn’t hold. Their studies suggested that among developing countries nominal lending rates had on average been around two-thirds on nominal GDP growth rates (although China, at around one-third, was still well below anyone else’s at the time).

There is some controversy about whether it is true that the nominal lending rate should be broadly equal to the nominal GDP growth rate. In fact most studies of developed countries suggest that over the medium and long term this is indeed the case. UBS tried to show that this was not applicable to China and did a study several years ago showing that among developing countries this relationship didn’t hold. Their studies suggested that among developing countries nominal lending rates had on average been around two-thirds on nominal GDP growth rates (although China, at around one-third, was still well below anyone else’s at the time).



note (BB): interesting to think about the above re: the latest changes to European ECB rates with no growth in Europe.



What does a “good” Chinese adjustment look like? | Michael Pettis' CHINA FINANCIAL MARKETS