China Said to Poll Banks on Ending Main Deposit, Loan Rates

  • Survey doesn't signal immediate removal of rates, say people
  • Central bank has already removed upper and lower limits

China’s central bank recently surveyed banks on the possibility and potential impact of removing its benchmark deposit and lending rates, people familiar with the matter said.

The survey won’t necessarily result in the immediate removal of benchmark rates, according to the people, who asked not to be identified as the matter hasn’t been made public yet. The People’s Bank of China also asked lenders whether they use the Loan Prime Rate, one person said. Commercial banks charge the LPR, which is calculated on the basis of rate submissions from nine lenders, to their most high-quality clients.

The survey marks the latest in a series of steps the central bank has taken as it shifts away from a tightly regulated system where the PBOC conceived policy with quantitative outcomes in mind -- such as the amount of new loans extended each month -- to one where liquidity is determined by the price of capital.

“This is an important and the last move to achieve interest rate liberalization,” said Liu Xuezhi, a macroeconomic analyst at Bank of Communications Co. in Shanghai. “China will continue its reforms, such as making the foreign-exchange market more transparent, in the coming year, as long as it can control the risks of an economic slowdown and avoid excessive volatility in the financial market.”

The PBOC didn’t immediately reply to a fax seeking comment on the survey.

Policy makers have been moving toward creating what the central bank calls an interest-rate corridor to guide borrowing costs after policy makers scrapped a deposit-rate ceiling in October. PBOC officials including research bureau chief economist Ma Jun have mapped out such a move toward setting the seven-day Standing Lending Facility interest rate as the ceiling and interest on excess bank reserves as a floor for rates.

The central bank, which sets the benchmark one-year deposit and lending rates, has already removed their upper and lower limits. Policy makers have cut both rates six times since late November 2014 to help boost the economy as it heads for the slowest full-year growth in a quarter century.

— With assistance by Xize Kang, Ling Zeng, and Steven Yang

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