Interest Rate Liberalization in China

By Tarhan Feyzioglu, Nathan Porter, Elöd Takáts

August 1, 2009

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Format: Chicago

Tarhan Feyzioglu, Nathan Porter, and Elöd Takáts. Interest Rate Liberalization in China, (USA: International Monetary Fund, 2009) accessed November 21, 2024

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

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.

Subject: Banking, Commercial banks, Deposit rates, Financial institutions, Financial services, Interbank rates, Interest rate policy, Loans, Monetary policy

Keywords: Bank bankruptcy, Bank lending, China, Commercial banks, Deposit rate, Deposit rate rise, Deposit rates, Financial deregulation, Financial liberalization, IB rate, IB rate target result, Impact interest rate liberalization, Interbank rates, Interest rate liberalization, Interest rate policy, Lending rate, Lending rate falling, Lending rate regulation, Loans, Market power, Monetary policy, Target IB, Target IB rate, Target result, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/171
Stock No:

WPIEA2009171
ISBN:

9781451873184
ISSN:

1018-5941

Notes

Full text also available in Chinese

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