PBOC to continue regulating interest rates despite liberalization

BEIJING - China's new move giving its banks freedom to set their own deposit interest rates does not mean the state has given up control of the formation mechanism, the central bank stressed on Monday.

Regulation may be needed in some "abnormal situations" as the mechanism serves as an essential tool for China's macro-control policies, according to a statement published on the People's Bank of China (PBOC) website.

Deputy PBOC governor Yi Gang said in the statement that China "will regulate the rate according to its different growth stages and inflation cycles."

Justifying the policy, Yi pointed to US banks raising deposit rates far above the official rate at the outbreak of the financial crisis and this had effect on broader financial stability.

The central bank lifted controls on interest rates for bank loans in July 2013, and on Friday, it gave domestic banks long-awaited freedom to set their deposit rates.

"China's interest rates have been basically liberalized," said a PBOC statement on Monday, calling Friday's move a "significant milestone" in the country's financial reform.