Chinese institutions issue nearly 200b in interbank CDs

BEIJING - Chinese financial institutions have issued nearly 200 billion yuan ($32.5 billion) in certificates of deposit (CDs) on the interbank market since December, an official with the central bank said on Friday.

To let banks borrow at more stable costs, China first allowed trading of CDs between banks in December last year, another step toward freeing up the country's interest rates.

In the first seven months, 31 financial institutions issued CDs totaling 184.6 billion yuan, Zhang Cuiwei, deputy director of the monetary policy department of the People's Bank of China, was quoted as saying in Saturday's Shanghai Securities News.

Zhang said the aggregated volume of interbank CDs at the end of July expanded 30 percent from the end of June. The trend has continued into August, with total interbank CDs issued standing at nearly 200 billion yuan as of mid-August, according to Zhang.

Analysts believe the introduction of interbank CDs will help set pricing standards for the future launch of large negotiable certificates of deposit (NCD). NCDs have proved effective in overcoming hurdles in interest rate liberalization in other countries.

China has taken incremental steps toward interest rate liberalization, including scrapping the floor limit for lending rates in July 2013.

The central bank said in early August it will accelerate work to establish a deposit insurance?program in the coming months, which is deemed a precondition for liberalizing deposit rates.

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