PBoC interest rate deregulation likely to be completed

China has meaningfully accelerated the process of interest rate liberalisation in the past few years. 

Starting in 2012 the People's Bank of China (PBOC): 1) removed the lending rate floor relative to benchmark interest rates (BIR); 2) removed the >1-year time deposit rate ceiling; and 3) relaxed the deposit rate ceiling on other tenures to no higher than 1.5x BIR. 

The PBOC also launched the large negotiable certificates of deposit (NCD) market, effectively allowing banks to acquire over-the-counter (OTC) funding directly from companies and institutions. Thus, banks now have autonomy on pricing most of their assets and liabilities. 

"In the 13th FYP, the remaining interest rate ceiling controls are expected over time deposits with tenures of one year or shorter, as well as demand deposits, to be removed, marking the completion of interest rate deregulation", says Barclays. 

However, the remaining liberalisation might still be carried out gradually, thus making its impact more manageable for banks.