China Allows Certificates of Deposit To Set Own Rates

China has taken another step in liberalising its financial sector by loosening its grip on interest rates.

The central bank has said it will allow banks to trade deposits with each other from Monday, using a financial product called certificates of deposit.

The interest rate on the certificates will be determined by the market, unlike ordinary deposits, which are subject to rate caps in China.

The move is also likely to help improve cash circulation in interbank market.

In June, the overnight lending rate between banks jumped to exceed 25% at one point as banks became reluctant to lend to each other amid a cash crunch, before falling in subsequent days.

China’s state-owned Xinhua news agency said the latest move “will allow banks to borrow at more stable costs in the interbank market”.

The minimum amount for an individual certificate of deposit will have to be 50m yuan ($8.2m; £5m) and banks will also have to inform the central bank in advance about how much they plan to issue in a year.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza