Beijing might allow rural credit co-operatives to lend at rates up to 70 per cent above the central bank benchmark in its boldest experiment with interest rate deregulation, according to a senior People's Bank of China (PBOC) official.
'Rural credit co-operatives can already float their lending rates up to 50 per cent over [the PBOC's benchmark rate],' he said yesterday. 'If we want to further widen their interest rate band, we might consider, say, 70 per cent.
'We think raising the cap to that level is pretty much like interest rate deregulation. Because, even with total deregulation, most loans will be extended within that band.'
However, the PBOC had yet to develop a concrete timetable for the further relaxation, he said.
Rural credit co-operatives, which have been allowed to lend at rates up to 40 per cent over the PBOC rate since 1996, have historically led the way for rate deregulation at mainland banks.
Urban banks can raise the PBOC's official rate by as much as 30 per cent in lending to small and medium-sized enterprises, and by 10 per cent for loans to large companies. They can reduce the PBOC rate by a maximum of 10 per cent in all-yuan lending.
Only in all-foreign-currency loans and deposits above US$3 million (HK$23.4 million) can banks set their own interest rates. Yuan deposit rates have remained fixed by the PBOC.