Foreign deposit rate ceiling scrapped in Shangahai FTZ

The central bank on Wednesday made yet another stride in liberalizing the nation's interest rate, by scrapping the deposit rate ceiling for foreign currencies in a trial zone in Shanghai.

The policy is a continuation of a major foreign exchange reform in 2000, when the foreign currency lending rate was liberalized as well as the deposit rate for accounts over $3 million.

Interest rates of foreign currencies are fully liberalized in the zone after the scrapping of the deposit rate ceiling on Wednesday. Analysts believe the central bank is close to making similar moves on the home currency, the yuan, as per a guideline issued in 2002 in which the central bank said interest rate liberalization will start with foreign currencies before moving on to the yuan.

The policy applies to both corporate and individual accounts in the Shanghai Free Trade Zone.

Bank of China on Wednesday offered a 0.75 percent rate on one-year fixed US dollar deposits. Rates for similar at Bank of Communications was 0.8 percent, HSBC Holdings PLC offered 0.95 percent and Citigroup Inc was giving 1.25 percent.

In a press conference in Shanghai, the central bank also urged commercial banks to step up risk management efforts to make sure the new policy doesn't cause cross-zone arbitrage, or foreign exchange rate volatility. The bank said it will watch closely how the policy fares and any irregularities will be met with strict consequences.

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