April 13, 2018 / 7:28 AM / 4 months ago

China's central bank to relax commercial banks' deposit rate ceiling: sources

HONG KONG/SHANGHAI (Reuters) - China’s central bank will relax its informal guidance for the upper limit of commercial banks’ deposit rates, facilitating the market liberalization of interest rates, three sources with knowledge of the matter told Reuters on Friday.

FILE PHOTO: A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014. REUTERS/Petar Kujundzic/File Photo

Although the People’s Bank of China (PBOC) scrapped the official ceiling for deposit rates in October 2015, the rates are still largely constrained by the regulator’s window guidance and the market interest rate pricing self-regulation mechanism.

Deposit interest rates are set around 1.5 times the central bank’s benchmark rates in general.

The newly-appointed PBOC Governor Yi Gang had hinted about the changes at the Boao Forum for Asia, one of the sources said.

China’s interest rate liberalization reforms of letting the market set the cost of credit have been seen by economists as a key step toward allocating capital more efficiently and avoiding the wasteful investment that continues to dog the world’s second-biggest economy.

The tight regulatory environment at the moment provides a window to push forward interest rate liberalization, as banks are now under more pressure to compete for deposits, a senior banking executive said.

When contacted by Reuters, the PBOC declined to immediately comment.

Reporting by Xiaowen Bi in HONG KONG and Li Zheng in SHANGHAI, Writing by Shu Zhang and Ryan Woo in BEIJING; Editing by Jacqueline Wong

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