PBOC to Loosen Ceiling on Commercial Lender Deposit Rates

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China’s central bank will loosen its guidance for the ceiling on the deposit rates of commercial banks as part of ongoing market liberalisation reforms, according to sources speaking to Reuters.

The People’s Bank of China rescinded its official threshold for deposit rates over two years ago, yet in practice rates are still restricted by the central bank’s window guidance and the market interest rate pricing self-regulation mechanism.

Deposit interests rates are usually kept at around 1.5 times the benchmark rate of the central bank in practice.

Interest rate liberalisation is considered a critical area for China’s financial reform program, with economists pointing out that allowing the market to play a decisive role in the pricing of funds will foster more efficient resource allocation and reduce waste.

PBOC has long pushed for greater reform of China’s monetary and financial system under retired governor Zhou Xiaochuan, while recently appointed governor Yi Gang alluded to further reforms at the Boao Forum for Asia.

One senior banking executive said to Reuters that China’s heavy regulation of the banking sector has given authorities breathing room to drive through interest rate reforms, by compelling lenders to compete for deposits.

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