China will further liberalize interest rates

China is considering measures to further liberalize interest rates, especially deposit rates, the country's central bank governor said on Tuesday.

The central government aims to maintain stable economic growth rates through market-oriented reforms rather than relying on loose fiscal or monetary policies, Zhou Xiaochuan, governor of the People's Bank of China (PBC). said at a Sino-French financial forum held in Beijing.

The central bank is implementing a prudent monetary policy while making it more targeted and flexible, he said.

In terms of reforms unveiled at the Third Plenary Session of the 18th Communist Party of China Central Committee, China will improve the market-oriented formation mechanism for the yuan's exchange rate, reduce the central bank's regular interventions in the foreign exchange market and speed up liberalization of interest rates, Zhou said.

With the establishment of a pricing mechanism for interest rates, China aims to realize liberalization of interest rates in the medium term, Zhou said, without providing any specific timetable.

"Lifting controls on deposit rates is the final and most important step for the country to push forward a market-based interest rate regime, which will be finally realized over one to three years according to my estimation," Zhou Jingtong, a senior analyst at the Bank of China, told the Global Times on Tuesday. In July, the PBC removed controls on lending rates.

"The reform will be conducted step by step, given the adaptability of financial institutions," Zhou said. "At the same time, a deposit insurance scheme and an exit mechanism for failed financial institutions should be set up to pave the way for freeing up deposit rates."

Commercial banks' deposit and lending businesses will face a challenge from the liberalization of interest rates, so banks need to diversify their business, Wang Hongzhang, chairman of China Construction Bank, told a forum held on Monday in Beijing.

"Liberalization of interest rates will create conditions for private firms to get access to more financial resources," Ma Jun, chief economist of Deutsche Bank in Hong Kong, said in a research note sent to the Global Times last week.