Interest Rate Liberalization in China
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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.
Series:
Working Paper No. 2009/171
Subject:
Banking Commercial banks Deposit rates Financial institutions Financial services Interbank rates Interest rate policy Loans Monetary policy
Notes:
Full text also available in Chinese
English
Publication Date:
August 1, 2009
ISBN/ISSN:
9781451873184/1018-5941
Stock No:
WPIEA2009171
Pages:
29
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