PBOC unveils draft rules to advance interest rate liberalization

The People's Bank of China, the country's central bank, unveiled draft rules to update the regulatory framework for renminbi deposit and lending rates on Friday, marking a fresh step in the country's efforts to deepen interest rate liberalization reform.

According to the draft rules, administrative controls over deposit and lending rates have been fully removed, with financial institutions now determining rates independently in accordance with central bank rules and commercial principles.

The regulation also aims to strengthen industry self-discipline and coordination by enhancing the role of the self-regulatory mechanism of interest rate pricing in maintaining market order. It adds responsibilities for the central bank and its local branches to guide such mechanisms.

In a notable change, the draft removes existing rules that stipulate overdue loan penalty rates should be charged at 30 to 50 percent above contracted lending rates and that loans used for purposes inconsistent with contract terms should face extra penalty rates of 50 to 100 percent. Instead, penalty rates, interest calculation methods and grace periods would be negotiated by borrowers and lenders.

The draft also introduces a definition of improper deposit-taking practices, including offering excessively high deposit rates through methods such as unauthorized manual interest supplements or breaching self-regulatory interest rate ceilings, which could disrupt fair competition in the deposit market.

In addition, the regulation revises interest calculation standards by adopting a rule under which annual interest rates are derived from daily rates multiplied by 365 days, or 366 days in leap years, helping unify interest calculation practices across financial institutions.

The public comment period will remain open until July 5.