Significance of the interest raise on USD deposit in China's mainland

The People's Bank of China announced on 17 Nov. that it would raise the commercial banks' upper limit of the interest rate for small amount of US deposits in China's mainland. Beginning on 18 Nov., there will be a 0.3125 percentage point hike for one-year US dollar deposit and the rate will be raised to 0.875 percent. This was the first interest rate adjustment for small amount deposit of foreign exchange for more than one year and it was indeed something rare to see in recent a few years.

Experts analyze that the policy orientation of the slight hike for USD deposit rate in China's mainland should be closely connected with the current situation that China is strengthening its foreign currency management and vigorously enhancing the reform of interest market. Meanwhile, it is also influenced by the fluctuation of international financial market caused by constant interest rate hike from the US Federal Reserve.

China's foreign exchange reserve has maintained rapid growth since the beginning of this year and reached 51.45 billion USD by the end of September, presenting a new record high. There are various indications that a great deal of risk capitals is also doing everything possible for an attempt to enter the Chinese market. As a result, the policy China currently adopts for governing the foreign exchange management is closely related to the implementation of financial macro-control. People's Bank of China and State Administration of Foreign Exchanges have also been frequently stipulating relevant policies, reinforcing the management of foreign exchanges.

The interest rate raise for small amount of USD in China's mainland also tallies with the current fluctuation of the international financial market. The US Federal Reserve has consecutively raised the interest rate for four times since June this year, which hiked the federal ruling interest rate from 1 percent that lingering for almost one year to 2 percent. According to the fluctuation of international financial market, People's Bank of China has made a timely adjustment on the interest rate for small amount of USD deposit, pointing out the direction for the reform of China's interest rate marketization.

While announcing the hike of interest rate for small amount of USD deposit in China's mainland, People's Bank of China has also made clear not to set upper limit on two-year deposit of the USD, euro, Japanese yen and Hong Kong dollar, which is seen as a fresh move to liberalize the interest rate marketization.

By People's Daily Online