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China to Liberalize Interest Rates in Next Three Years
China expects to free up interest rates system in about three years to speed up globalization of the world's largest developing economy, said Dai Xianglong, governor of the People's Bank of China, the country's central bank.
Dai made the remarks Wednesday at a news conference held by the Information Office of the State Council.
The Chinese government plans to loosen its grip on interest rates in a deliberate, gradual manner, beginning with lending rates, according to Dai.
"We expect most of this work will be completed within three years' time, but we will be especially cautious about deposit rates," Dai said. "I give this timetable without any reserve."
China is initially liberalizing interest rates on foreign currency deposits, to better reflect interest rate changes abroad, and on interest rates that banks charge each other.
Later, China will allow more flexibility in lending rates in rural areas, followed by urban areas. Deposit rates will be the last to be liberalized.
Once this is accomplished, China aims to manipulate money supply through sales and purchases of bonds in open-market operations, the way authorities in more developed markets do, Dai said.
For the shorter term, China does not plan to adjust interest rates, despite rate hikes in the United States.
"The monetary policy should consolidate favorable trends in the Chinese economy," he said. "The current level for interest rates is appropriate."
China's economy is in a different phase than the economies of the United States and Europe, he said.
While banks will be given a freer hand in setting interest rates, the exchange rate is not about to change anytime soon, he said.
China is maintaining a "managed-float" rate, which is closer to being a peg to the US dollar.
In local forex markets, the yuan is allowed to move only marginally from a level of about 8.28 to the greenback before forex regulators start intervening in the market.
"Recently, some experts at home and abroad have suggested increasing the flexibility of the exchange rate," Dai said. "It's worth studying, but we haven't decided to change the managed-float rate."
China has no concrete timetable for making the yuan freely convertible or for opening its capital account, he said, adding he had never given a deadline for freeing the capital account.
An open capital account would allow foreigners for the first time to invest in stocks priced in yuan.
It would also make it easier for local companies to raise money abroad for overseas investment, and not all Chinese enterprises are disciplined enough to deal with that kind of risk, Dai said.
"I'd be glad if I could convert yuan into pounds and dollars when I go to London or New York for international meetings, but there's a long way to go," he said.
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