This may help Beijing curb growing shadow banking activity.
China’s central bank will reportedly relax informal window guidance for the upper limit of commercial banks’ deposit interest rates, according to Reuters.
The move marks an important step forward in liberalising interest rates in the country.
Although China has removed the ceiling of commercial deposit rates in 2015, most of the deposit rates has been capped at 50% above benchmark interest rate. This is still below the yield offered by wealth management products (WMPs), according to OCBC Treasury Research.
Beijing has been working overtime to rein in the country’s $7t shadow banking industry, which is tied to a global supply of credit posing high systemic risk to global economic stability.
“As China is fighting off balance sheet activity, the removal of informal guidance may facilitate banks to bring deposits back to balance sheet,” OCBC added.
The balance of WMPs significantly slowed down after growing by a measly 1.7% YoY in 2017 from the peak 23.6% YoY in 2016 and its share in the GDP also falling from 39.5% in September 2016 to 35.7% in December 2017, according to BMI Research.
Here’s more from Reuters.
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