Apr 14, 2018 07:23 PM

China Relaxes CD Interest Rate Ceiling in Further Reform Step

China’s central bank has relaxed the implicit ceiling on interest rates for certificates of deposit in a further move to reform the financial sector, but it stopped short of easing the cap for all types of deposits, as had been speculated in recent days.

Citing three anonymous sources, Reuters reported Friday that the People’s Bank of China (PBOC), the country’s central bank, will relax its implicit limit of commercial banks’ deposit rates.

The PBOC has yet to make an official announcement on its new policy, but several people briefed on the decision told Caixin that Chinese banks would only be allowed to adjust CD interest rates by larger margins in accordance with their status.

For instance, the four big state banks – Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China -- can now raise their CD interest rates as much as 50% above the PBOC’s benchmark rate, up from the previous 40% limit, according to the sources. Larger private stock-holding banks can raise their CD interest rates 52% above the benchmark compared to 42% before, while small regional banks can inflate their rates by 55%, up from 45%.

PBOC Governor Yi Gang pledged in a speech during the Boao Forum for Asia Annual Conference a few days ago that the central bank would further liberalize the interest rate market. He specifically pointed to “the two-track interest rate system” in China — the control of deposit and loan interest rates for individuals via the central bank’s benchmark rate system compared to the capital market rates for businesses that are fully determined by supply and demand.

Certificates of deposit are financial instruments with higher interest rates than conventional savings accounts that are open to individual and non-financial institutional investors. Investors are usually required to deposit a minimum of 200,000 yuan in a CD for a specified length of time.

Bank of China offers a three-year CD with an annualized interest rate of 3.85%, higher than the 2.75% rate on a common three-year term deposit. Chinese banks have been allowed to adjust interest rates for conventional term deposits by small amounts since October 2015.

One China Construction Bank manager told Caixin that a one-year CD with an interest rate 45% higher than the PBOC’s one-year benchmark rate became available at the bank from lunch time Saturday, the first of the higher interest rate CDs rolled out by a big-four institution.

CDs, which represent a small portion of the deposit market, are sometimes favored by banks because they can be offered on more flexible terms, according to one bank executive. “However, the flip side is that they are more expensive, ratcheting up costs for banks,” he said.

Contact reporter Li Rongde (

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