Xinhua recently reported that the Chinese central bank announced it will no longer control the interest rates that banks set for commercial loans. The new policy takes effect starting July 20, 2013. The banks now have the full power to decide their interest rates. This is very different from the traditional method that the central bank required, which was to satisfy a floating minimum rate based on a formula. Rural area credit unions can now also enjoy the freedom of offering their own commercial loan interest rates without the central bank imposing an upper ceiling. However, in order to “protect the healthy development of this market sector,” the new policy does not apply to mortgage loans for the housing market. The central bank suggested that the new policy is to expand the room for negotiation between banks and their customers and to encourage differentiation among banks and bank products. One of the goals of the new policy is to lower the financing costs for companies in the real economy.
Source: Xinhua, July 19, 2013