In an important step towards interest rate liberalization, the People’s Bank of China announced a series of new measures to further free up the country’s interest rates, according to a note published on the central bank’s website.
The floor of lending rates, which is 70% of the fixed policy lending rates, is removed. Bill discount interest rate controls are also scrapped. At the same time, the cap on lending rates will be removed for rural credit cooperatives.
In an effort to contain the Chinese housing market, these new measures will not apply to individual mortgage loans.
These measures are to be effective from July 20, 2013.
Sanford C. Bernstein says the new policy will have no impact on the earnings of big Chinese banks. National Chinese banks have never historically offered loans below 90% of the benchmark level.
ANZ says the new policy may squeeze some commercial banks’ margins, especially medium and small banks as companies gain more bargaining power.
ANZ also predicts that the new measures will act as a stimulus to the real economy as state-owned enterprises enjoy lower borrowing rates.
The next step in China’s interest rate reform will be to remove the ceiling of the deposit rates. Sanford C. Bernstein says it expects the deposit rates reform to take longer time as regulators show determination to take a gradual approach to interest rate reform.