April 10, 2014 / 12:56 PM / 3 years ago

UPDATE 1-China c.bank says to free up deposit rates when time is right

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BOAO, China, April 10 (Reuters) - China will choose a proper time to liberalise bank interest rates and gradually reduce its currency intervention to give the yuan more freedom to move, central bank governor Zhou Xiaochuan said on Thursday.

"We will choose a proper time to widen the floating range of deposit rates," Zhou told reporters and delegates during the annual Boao forum.

Zhou said last month deposit rates were likely to be liberalised in one to two years, but government economists and policy advisers told Reuters they believed the central bank was treading cautiously as economic growth slow.

The central bank is widely expected to introduce a deposit insurance scheme before liberalising deposit rates to protect savers in case a freed-up market leads to major turbulence for smaller banks.

Analysts expect the controls on deposit rates to be lifted gradually. The current ceiling on deposit rates is 110 percent of the benchmark set by the central bank.

Zhou reaffirmed that the People's Bank of China would gradually exit from regular intervention in the foreign exchange market to give the yuan more breathing space.

"The renminbi (yuan) floating range has been expanded to 2 percent from 1 percent, the next step will be moving in this direction," he said without elaborating.

Last month, the PBOC loosened its grip on the yuan by doubling its daily trading band, adding teeth to a promise it would allow market forces to play a greater role in the economy.

China will further encourage mainland firms to issue yuan bonds in Hong Kong and support Hong Kong firms to issue panda bonds on the mainland, Zhou said. (Reporting by Aileen Wang in Boao and Kevin Yao in Beijing; Editing by Robert Birsel)

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