China's central bank announces interest rate reform
The central bank of China, the People's Bank of China (PBOC), announced that the floor on commercial banks' lending rates was removed. This announcement was made through a statement posted in PBOC's website.
The effect of this announcement woud be for banks to cut rates as much as "they see fit" in order to attract borrowers. The removal of the lending rate floor, set to take effect on Saturday, was to lower the financial costs for businesses and individuals.
"This is a big breakthrough in financial reforms. Previously people had thought the central bank would only gradually lower the floor on lending rates. Now they scrapped the floor once and for all," said Wang Jun, senior economist at China Centre for International Economic Exchanges.
However, the deposit rate ceiling remained the same at 110% of benchmark rates. Many economists thought that this was the most important step in order to liberalize Beijing's interest rate regime.