Marketize deposit interest rate prudently

The government should not only lift its interest rate controls, but also open up the financial market to more competitors. After perfecting its deposit insurance system and exit mechanism for banks, the government should release its control over deposit interest rates, said an article in the Economic Daily (excerpts below).

Lifting controls over loan interest rates is an important step for the marketization of interest rates in China. Marketization of rates will put the banking industry on a more competitive footing. The banks will no longer rely so much on interest margins for profit. Their business will divert more to retail businesses.

The government should also reform the State-owned commercial banks' monopoly of the banking industry. Only by lowering the interest margin can banks win more funds for lending.

The marketization of interest rates cannot be accomplished in a single action. The government should first build up a self-disciplinary mechanism to set market interest rates, start the reporting of the loan prime rate and promote inter-bank deposit insurance and trading to address the lack of information for borrowers in the credit and loan market.