Shanghai liberalises interest rates on foreign currency deposits

SHANGHAI - China will expand a pilot programme on foreign currency deposit rates from Shanghai's Free Trade Zone (FTZ) to the whole of Shanghai city from June 27, first liberalising interest rates on small-sum foreign currency deposits from companies, and then expanding to those from individuals, the Shanghai Head Office of the People's Bank of China said.

ANZ Bank describes the move as an important experiment for China's interest rate liberalisation because it is being extended to involve the domestic banking system. The pilot started in the FTZ just three months ago.
“The PBoC’s bold extension of the liberalisation to the whole of Shanghai, China's financial centre, indicates China's determination to quicken the reform,” ANZ says. “It also suggests that China may soon start similar experiment for RMB deposits in the FTZ or banks’ Free Trade Accounts.
“If successful, China will also likely roll out liberalisation on foreign currency deposits across the whole country. China's foreign currency deposits totalled US$566 billion in May, representing about 3% of total deposits.
“However, the liberalisation applies to foreign currency deposits only and the cap on RMB deposit rate remains. Such a partial liberalisation may still distort the market pricing of RMB and foreign currencies in the money and FX market and arbitrage opportunities may exist. The PBoC is expected to watch the market flows closely and to keep a tight rein.” www.live.anz.com (ATI).