PBOC takes more steps to liberalize interest rates

Lenders may offer as much interest as they wish for small-scale foreign currency deposits in Shanghai from June 27, said People's Bank of China Shanghai Head Office on Thursday, in a step aimed at further liberalizing interest rates in the country.

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Since March 1, interest rates for foreign currency accounts (with balance of value under $3 million) have been deregulated within the China (Shanghai) Piloted Free Trade Zone. The new policy, which comes into effective on June 27, is an expansion of the March 1 policy, and it is also a trial for further expansion of the interest rates for foreign currency deposits nationwide, said Zhang Xin, head of PBOC Shanghai Head Office.

The trial policy will first apply to corporate deposits; the cap for interest rates of foreign currency deposits of individuals' accounts will be removed when conditions are mature, according to the PBOC's circular.

The easing of foreign currency deposit rates will help enhance corporate' capital managements, and will also release lenders' competence, said Pan Yuehan, head of Bank of China Shanghai Branch.

The liberalization of foreign currency deposits will also help to reflect the actual market demands. Meanwhile, lenders also need to face the challenge of risk management and pricing management in order to avoid massive deposit flows and destructive competition.