Zhou Xiaochuan, governor of the People’s Bank of China (PBoC), said Friday that the country’s interest rates will gradually become more liberalized, which would in turn improve the allocation of resources, the Wall Street Journal reported. Zhou said interest rate reform would make monetary policy more effective, adding that commercial banks should prepare for a time when a smaller proportion of their revenue comes from interest margins. He envisages a lending environment in which the best-run companies receive more interest rate pricing power than their less efficient rivals. China has long talked of interest rate liberalization but progress has been stalled by the government’s desire to maintain tight control over the financial system. Banks are still subject to a cap on the amount by which they can go below benchmark rates for loans and above benchmark rates for deposits. Gradual interest rate liberalization is one of the objectives of the 12th Five-Year Plan.
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