China is relaxing its grip on interest rates with the launch of a financial instrument that allows banks to trade deposits with each other at market-determined prices, writes Simon Rabinovitch in Shanghai.
The certificates of deposits will push banks closer to an operating environment in which rates are deregulated and are also aimed at improving the circulation of cash in the country’s interbank market.
Beijing used to fix deposit and lending rates, limiting competition between banks and, in effect, transferring cash from savers to borrowers because of the artificially low rates. But, over the past two years, the government has eased controls, lifting restrictions on lending rates and giving banks more freedom to determine deposit rates.
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