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Focus on Saver Returns Now After China Frees Lending Rates

The biggest step yet by China’s new leaders to move the nation’s financial system toward market-set lending rates heightens focus on what the central bank says is an even tougher reform: lifting restrictions on savers’ returns.

The People’s Bank of China ended a floor on borrowing costs previously set at 30 percent below the benchmark, it said July 19. The limit on mortgage rates will stay to curb property speculation, the PBOC said. Also unchanged was a 10 percent limit on what banks can offer over PBOC-set deposit rates.

Forcing banks to compete for funds would offer consumers more spending power, while undermining the model of state-directed, subsidized credit bequeathed to Premier Li Keqiang, who took office in March. At stake is phasing in reform without exacerbating a slowdown in the world’s second-largest economy.

Bloomberg [1]

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