The floor limit on lending rates in China is discarded effective today. The decision would therefore pave way for financing institutions to have more elbow room to package their lending rates.
The statement from the People's Bank of China released on Friday said it is removing the minimum cap set at 30% below the current six percent benchmark. In the first three months of 2013, only around 11% of the loans are priced below the benchmark.
The move was seen as a stop-gap measure to counter the slowdown in the economy. However, analysts also observed that the move is also a reflection of China's reluctance to adopt measures to further liberalize the economy.
China would have been better served adjusting the deposit rates, which would have boosted household income, but could narrow down the profit margins of banks. PBOC, nonetheless, correctly noted that China has no deposit insurance system which would make it more risky to free up the deposit rates.
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