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Removal of deposit rate ceiling not imminent

(Global Times)

08:24, July 25, 2013

China will not remove the depo­sit rate ceiling this year or next, stock information portal aa­ reported Wednesday, citing a former central bank vice governor.

"Many people expect a loosened grip on deposit rates, and I believe as well it would be the final step of (the country's) interest rate liberalization to decide on the deposit rate ceiling," Wu Xiaoling, former vice governor of the People's Bank of China (PBC) and the current vice chairperson of the Financial and Economic Affairs Committee of the National People's Congress, said in Beijing Tuesday, according to the report.

But Wu said a removal of the ceiling this year or next year is unlikely.

China's real interest rates are currently in positive territory, and in this context it would be beneficial to the country's financial stability to gradually push forward deposit rate liberalization, Wu said.

A sudden lifting of the deposit rate ceiling would be likely to result in deposit rate wars among financial institutions in a competition to woo depositors, Wu noted, citing the disruption seen in the market for various high-yield wealth mana­gement products.

The launch of a deposit insurance system should be the requisite for abandoning the deposit rate ceiling, she said.

Wu's remarks came after the PBC announced Friday the removal of the lending rate floor, effective from Saturday.

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