Yuan, interest rate reform to be gradual: China central bank chief

Sun Apr 22, 2012 11:51pm EDT
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BEIJING (Reuters) - China will take a gradual approach to yuan reform and will not be in a hurry to free up deposit rates offered by banks, as it seeks to rebalance its economy and deepen its financial markets.

Beijing doesn't plan a one-off revaluation of the currency and will instead allow market forces to determine the yuan's value, Zhou Xiaochuan, governor of the People's Bank of China (PBOC), was quoted in a magazine interview.

Banks will soon be allowed to set their lending rates, but liberalizing deposit rates will depend on the strength of banks and other lenders, Caijing magazine quoted Zhou as saying.

A flexible yuan and a freer interest rate regime will help Beijing boost domestic demand in the economy, which relies too much on investments and exports at a time when the global economy is battling a slowdown.

"Since we have decided on the gradualism approach (for the yuan), and we have been implementing that for years, we are almost there and we must stick to the path," Zhou said.

A 2.1 percent revaluation of yuan against the dollar in July 2005 had been successful as its impact on the domestic economy was smaller than feared and at the same time relieved international pressure, but another similar move is not on the cards, he added.

"There will be no need to leap forward at one time and opt for gradual reform at another," Zhou said.

The interview, which is published on the latest edition of Caijing, was conducted apparently before the central bank's move last weekend to widen the yuan trading band.

Zhou, who had been talking about "band widening" for months before the bank finally made the move, said it will make the yuan exchange rate more flexible, adding that the PBOC will intervene less in the currency market.   Continued...

Different values of China's yuan banknotes are placed on a window sill as Shanghai's skyscrapers are seen in the background, in this photo illustration taken in Shanghai April 15, 2012. REUTERS/Petar Kujundzic