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BEIJING, Dec. 11 - The government will gradually remove the ceiling on deposit rates and the floor on lending rates as the health of its banking1 system improves, deputy central bank governor Wu Xiaoling said Saturday.
Wu gave no timetable for liberalization, but her comments will reinforce speculation2 that interest rate reform will be a priority for China’s leaders when they hold a five-yearly conference in coming weeks to chart financial strategy. Speaking at a forum3 on rural finance and development, Wu said the central bank had to maintain deposit and lending limits for now because banks lacked self-discipline. Without a cap on deposit rates, currently 2.52 percent for one-year money, banks would lure4 savers with high rates even if they could not afford them. Similarly, without a floor on lending rates, banks would slash5 borrowing costs to win business and end up in trouble. “With the mechanism6 of financial institutions improving, the floor and ceiling will gradually fade out,” Wu said. The People’s Bank of China (PBOC), the central bank, removed the ceiling on lending rates in October 2004 but banks must still charge at least 90 percent of benchmark rates set by the PBOC. For the one-year tenor7, this rate is 6.12 percent.
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