China’s interest rate liberalization is now focused on unifying the “two tracks” of lending rates, the People’s Bank of China (PBoC) reported in its latest quarterly report, said Caixin.
The report’s release marks the first time that the central bank has signaled how it will unify the two tracks—one is the benchmark rates set by the bank, while the other refers to the ones chiefly set by the market. It is likely the central bank will first try to merge lending rates instead of deposit rates, said Caixin.
Combining benchmark and market-based lending interest rates allows commercial banks to price loans on their own, with lower rates for lower-risk companies and vice versa. This can help enhance market competition, the PBoC said in the report.
The merging of interest rates sits at the core of China’s interest rate liberalization, which in turn is one of the key reforms to the country’s financial sector.