Domestic Banks Given Autonomy in Setting Own Deposit Rates

Domestic Banks Given Autonomy in Setting Own Deposit RatesChina is now giving domestic banks the long awaited autonomy to set their deposit rates on Friday, although analysts stated that there will no race to raise interest rates to win over potential savers. China started its interest rates liberalization last year and slowly widening the floating range for the benchmark deposit rate set by the People’s Bank of China and the central bank. The elimination of the floating range control indicates that China’s interest rates are basically liberalized and the People’s Bank of China is calling the move a significant milestone in the financial reform.

The central bank lifted controls on the interest rates for bank loans in 2013, the last move came from Chinese savers as they moved their deposits to higher return wealth management products from non bank companies such as those being offered by Alibaba and Tencent. Experts predicted that the interest rate liberalization allows banks to flight back but so far China’s top six lenders slightly raise their deposit rates. China CITIC Bank and China Minsheng Bank are more generous are they offered 2 percent rate for one year savers.

Major financial institutions in China long coordinated their policies in hopes to avoid competition. The rate increases were moderate and most banks even cut interest rates for current deposits by 0.05 percent from the benchmark down to 0.3 percent. The central bank also widened its floating range to 1.2 times the benchmark rate last November then increased it to 1.3 times the benchmark in March and lastly to 1.5 percent in May. Since then most banks have not raise interest rates as the People’s Bank of China have allowed and some said that there was no need to place a floating range control in place.

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