BEIJING May 23 China may remove its floor for
interest rates as early as this year or next year at the latest,
Chinese media said on Thursday, an important step towards
freeing the country's tightly-controlled interest rates market.
Ba Shusong, a researcher at the Development Research Center,
a think-tank whose recommendations to China's cabinet are
sometimes adopted, was quoted by local media as saying that
interest rate reforms are imminent.
"This is going to happen immediately," Ba was shown as
saying in an online video clip on state media Chinanews.com, in
reference to interest rate reforms.
"If it's early, it will happen in the second-half of this
year. If it's late, it will happen next year," Ba said.
To protect the profits of its state banks, China sets a
minimum limit on interest rates and a maximum limit on deposit
rates, ensuring that banks get a guaranteed margin of at least
90 basis points.
Banks at present can offer deposit rates as high as 110
percent of benchmark rates and lending rates as low as 70
percent of benchmark levels.
One-year benchmark deposit rates stand at 3 percent while
lending rates are 6 percent.
Critics of China's interest rate controls say they distort
the price of credit and encourage wasteful investment. Capping
deposit rates also suppresses the returns on bank deposits,
spurring savers to plough their cash into other investments
including a frothy real estate market.
Advocates of China's interest rate reforms also argue that
it must precede the country's much-anticipated currency reforms
as a competitive rates market could lower lending rates and
dampen hot money inflows when Beijing eases control over the
A central bank official said earlier this month at a meeting
in Beijing that the liberalisation of savings rates requires
more caution than that for lending rates, as the former could
hit small banks especially hard.
Chinese lending and savings rates are already being
liberalised at the margins through explosive growth in
alternative financing channels such as sales of bonds and trust