How to look on the dollar deposit rate hike? Review

The People's Bank of China announced on November 17 that the central bank had decided to raise the deposit rate ceiling for small foreign currency deposits in commercial banks from November 18. The one-year US dollar deposits rate ceiling was raised by 0.3125 percentage points to 0.875 percent.

Statistics show that this was the first adjustment of small foreign currency deposits rate by the central bank in almost a year. It was an even rarer event in recent years that the central bank made adjustment for the US dollar alone. The current one-year US dollar deposit rate is 0.5625 percent which started on July 2, 2003. Its adjustment was reduced by 0.25 percentage points compared with the last time.

The question remains: what are the positive significances for the central bank to raise deposit rate ceiling for domestic small US dollar small deposits by 0.3125 percentage points?

Experts analyzed that the policy intention of raising domestic US dollar deposits rate by a small margin must be closely linked with China's efforts at strengthening foreign exchange supervision and pushing forward the marketization of interest rate. And it was also influenced by the fluctuations in international financial market such as the Fed's repeated interest rate hikes this year.

Since the beginning of this year China's foreign exchange reserves have kept rapid growth. By the end of September they had reached $514.5 billion - a new record high. All the signs have shown that various speculation capitals are devising ways to enter China. Current adopted policies on foreign exchange supervision are directly linked with the implementation of financial macro-controls. Recently the central bank and State Administration of Foreign Exchange keep releasing policies aimed at strengthening foreign exchange supervision.

Raising domestic small US dollar deposits rate is also in line with the fluctuation in current international financial market. Starting from June the Fed has raised interest rate four times in a row. This has increased the federal benchmark rate, which stayed at 1 percent for a year, to current 2 percent. Based on the fluctuations in the international financial market the central bank made timely adjustment to small foreign currency deposit rate in line with China's marketization reform of interest rate.

While announcing the raise last week the central bank also said that starting from November 18 it would no longer release rate ceilings for the two-year small foreign currency deposits of US dollar, euro, yen and HK dollar, but instead would leave the decisions and announcements of the deposit rates to commercial banks. This is another important measure adopted by the central bank to push forward the marketization reform of interest rate.

By People's Daily Online