Conditions more and more mature for market-based interest rate

Zhou Xiaochuan, governor of the People's Bank of China (PBC) said at China Development Forum on March 21 that as conditions are growing more and more mature for market-based interest rate, commercial banks should learn to make decision on their deposit and loan prices.

Zhou said, China is in a transition period from planned economy to market economy, in which the interest rates may not be so elastic than in mature countries. However, after years' economic reform, progress has been made in the interaction between commercial banks and enterprises and conditions have grown more and more mature for market-based interest rate.

Zhou said the deposit and loan rates of commercial banks should be determined based on risk management and the degree of risk. Over the years, China has been implementing a policy of fixed rates of interest, under which the deposit and loan rates are determined by the central government leaving limited decision-making rights for commercial banks on floating rate. As the reform on market-based interest rate is pushed forward, time to let commercial banks to learn to make decision on the rates.

According to the PBC's report on promoting market-based interest rate on January 31, the basic ideas for reform of market-based interest rate are first, liberalize the interest rates in the monetary market and securities market, then gradually boost market-based deposit and loan rates. The PBC hopes the process can be advanced quickly and is now vigorously pushing commercial banks along the path.

By People's Daily Online