Officials with the Monetary Policy Department of the People’s Bank
of China have disclosed that the central bank will lessen controls
to allow the market to decide interest rates. They said that
foreign currency loan interest will likely be free within the year.
And the interest rates of rural credit cooperatives will be allowed
more room for fluctuation.
China’s interest market reform aims to establish a loan and deposit
interest system of financial institutes to be decided by market
demand with the central bank’s interest rate as a baseline and the
currency market’s interest rates as a balancing lever.
The officials indicated that foreign currency deposit and loan
interest would be freed first to meet the demand of foreign-funded
banks for operating all aspects of forex business after China’s WTO
accession. Loan interest rates will be decided by financial
institutes according to international interest rates, starting some
time in the second half of this year.
Another pilot reform will be allowing more room for interest rate
flotation by rural credit cooperatives. The deposit interest rate
is allowed to fluctuate between a range of 10-20 percent while the
loan interest rate can rise dramatically to a ceiling of 70
percent.
However, urban financial institutes’ interest reform is still under
review. The central bank is considering allowing financial
institutes, in the first half of next year, to give loans with a 30
percent interest rate float to all enterprises, which is something
now offered exclusively to small and medium ones. One year later,
the maximum interest rate float will be expanded to 50 percent; in
2003, it will be totally free.
But it will take five to ten years to free deposit interest rates,
according to these officials. At the beginning, common deposit
interest rate will remain under control and flexible interest rate
management will be granted to wholesale deposits.
(www.h5a3.com by Alex 06/04/2001)