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China Scraps Some Controls On Lending Interest Rates

Filed by KOSU News in Business.
July 19, 2013

China’s central bank announced that it was removing some controls on the interest rates charged by banks for the loans it issues clients.

Reuters explains that the People’s Bank of China said in a statement that it was removing the floor “on lending rates for commercial banks, meaning that banks will now be able to cut rates as much as they see fit to attract borrowers.”

Reuters adds:

“The central bank said it hoped the move will lower financial costs for companies.

“However, it did not scrap an existing ceiling on deposit rates, currently set at 110 percent of benchmark rates, which many economists see as the most important step Beijing will eventually need to take in liberalizing its interest rate regime.”

As The Wall Street Journal interprets the news, this is a “key step” in liberalization of the country’s interest rate regime. One analyst told Reuters the move was “a big breakthrough in financial reforms.”

As the AP sees it, this is a “move toward creating a market-oriented financial system to support economic growth.”

Bloomberg reports that the move had been telegraphed by the Chinese government.

“Today’s announcement builds on pledges by Premier Li Keqiang to expand an overhaul of interest rates, a development the World Bank says must be a priority in reform of the financial system,” Bloomberg reports. “China’s one-year benchmark lending rate has been held at 6% since the last reduction in July 2012.”

The AP notes this is the first major reform implemented under the government of President Xi Jinping. [Copyright 2013 NPR]

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