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PBC rolls out reforms on interest rates

By Song Shengxia (Global Times)

09:57, July 20, 2013

China's central bank announced Friday long-awaited reforms to liberate the country's interest rate regime by removing all controls on lending interest rates in a move to reduce financing costs of companies to aid a slowing economy.

However, the central bank did not remove the ceiling on deposit interest rates Friday and said it requires mature market conditions.

The People's Bank of China (PBC) said in a statement Friday it would scrap the floor limit for the interest rate that banks charge customers for loans from Saturday. The floor on the lending interest rate was previously set at 70 percent of the benchmark rate.

Controls on the rate of discounted bills and the ceiling for lending from rural banks will also be eliminated.

"The removal of controls on lending rates will give financial institutions and their clients greater scope to negotiate rates and help reduce financing costs for companies," the central bank said.

"It will also allow the financial sector to better support the real economy and improve economic restructuring and upgrading," it said.

"Today's announcement is a crucial step toward full liberalization of the country's interest rate regime and a broader financial reform," Zhao Xijun, a deputy director of the Finance and Securities Research Institute at the Renmin University of China, said Friday.

"The reform to remove the floor on lending rates is not a response to the recent inter-bank liquidity crunch but part of a long-term plan carefully designed by the central government," Zhao said.

In June 2012, the central bank relaxed the lending rate floor by allowing banks to offer a maximum discount of 30 percent on the benchmark rate after it removed the ceiling of the lending rate in 2004.

The State Council, the country's cabinet, led by Premier Li Keqiang, said in March that the country will roll out new measures to liberate interest rates and exchange rates within the year.

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