Launch Of Certificate Of Deposit Pushes China Toward Rate Liberalisation

The author is ANZ Greater China chief economist Li-Gang Liu

China will launch certificates of deposit (CDs) that can be traded in the inter-bank market in the near-term, a step to gradually achieve deposit rate liberalisation, said Hu Xiaolian, deputy PBoC governor.

She also said that China will create conditions to push forward interest rate liberalisation.

Compared with inter-bank borrowing, CDs can be traded before the maturity date, which will provide flexibility for commercial banks to manage liquidity conditions. However, it is still not clear who will qualify to issue the CDs.

We believe this is an important step towards full interest rate liberalisation, and that China could start the deposit insurance scheme next year.

In the meantime, China also needs to find a new anchor interest rate to reflect the monetary policy stance. However, it is still not clear which interest rate the central bank prefers.

In our view, either the Shanghai inter-bank offered rates (SHIBOR) or bond repurchase rates is a potential candidate.

(The article has been edited for clarity)

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