But an incomplete market-oriented reform may lead to a "double-track" pricing system or price distortion. For example, when the government first approved commercial banks to provide financial products with diversified interest rates, the products usually had higher rates than the traditional deposits.

So the market may worry all deposit rates will increase toward higher levels after they are liberalized. Such a worry is unnecessary, as the deposit rates will finally be decided by the market's demand-supply situation.

In addition, the obvious reductions in commercial banks' information costs require more flexible interest rates. Deposits and a part of lending products depend highly on data processing costs. The fast development of information technology has changed the costs of the financing business. Thus, commercial banks' pricing on deposits and lending should be in line with the changing costs.

Some clients have higher expectations of deposit rates especially when third-party payment and Internet companies pose challenges through financial innovations with lower costs. In the future, the competitive structure in the financial sector will be influenced by the financial institutions' technological levels and their different cost levels.

However, interest rate liberalization does not mean the government will give up the management of interest rates. The interest rates are the results of market-oriented resource allocation and, at the same time, are an important part of macroeconomic management.

It is necessary to manage the rates according to the nation's development strategies at different stages, and also according to the different cycles of inflation.

The central bank is required to improve the whole management system for interest rates and launch an advanced interest rate transmission mechanism for the financial market.

Meanwhile, supervision and self-regulation are needed to prevent "abnormal" interest rates. For instance, when the global financial crisis erupted, the US Federal Reserve lowered the policy rates close to zero, and started the first round of quantitative easing. At that time, some banks that were on the verge of bankruptcy, such as the Washington Mutual Bank, still raised the deposits rates to as high as 10 percent, in order to attract more deposits to sustain the business. Those kinds of moves are damaging and can threaten financial stability.

Therefore, the interest rate liberalization stresses a market-oriented way of reform. It is also a tool of macroeconomic management.

The author is vice-governor of the People's Bank of China.