© Reuters. FILE PHOTO: People wearing face masks walk past the headquarters of Chinese central bank People’s Bank of China (PBOC), April 4, 2020. REUTERS/Tingshu Wang
BEIJING/SHANGHAI (Reuters) – China plans to reform the way banks calculate deposit rates, setting new ceilings of up to 75 basis points above the benchmark rate for some lenders, sources said.
Authorities plan to allow banks to set upper limits on deposit rates by adding basis points to the benchmark rate, a shift from the current practice of multiplying the benchmark rate, the sources said.
All banks will be allowed to add up to 20 basis points (bps) to the benchmark rate on demand deposits and small Chinese banks and foreign banks will be permitted to add up to 75 bps to the benchmark rate on time deposit rates, they said.
Under the new pricing methods, the ceiling on the one-year fixed deposit rate will remain unchanged, at 2.25%, while the ceiling on fixed deposit rates over one year will be lowered, the sources added.
The move will help promote interest rate liberalisation and help slightly lower banks’ funding costs, they said. It was not clear when the change would take effect.
The People’s Bank of China (PBOC) did not immediately respond to Reuters’ request for comment.
In October 2015, the PBOC scrapped the ceiling on bank deposit rates, which are still constrained by its window guidance and pricing mechanism. The PBOC has kept the benchmark deposit rate unchanged at 1.5% since then.