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Interest Rate Liberalization in China
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Author/Editor: |
Feyzioglu, Tarhan | Porter, Nathaniel John | Takáts, Elöd |
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August 1, 2009 |
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Electronic Access: |
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
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Summary: What might interest rate liberalization do to intermediation and the cost of capital in China? China's most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.
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Series: |
Working Paper No. 09/171 |
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Subject(s): |
Banking | Banking sector | Banks | Capital markets | China, People's Republic of | Credit controls | Credit demand | Cross country analysis | Economic models | Financial intermediation | Interest rates | Loans | Monetary policy |
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Author's keyword(s): |
Financial liberalization | financial deregulation | interest rate liberalization | China |
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Published: |
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August 1, 2009 |
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Format: |
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Paper |
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Stock No: |
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WPIEA2009171 |
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Pages: |
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28 |
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Price: |
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US$18.00 (Academic Rate: US$18.00 )
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