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Interest Rate Liberalization in China

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  • International Monetary Fund
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    Abstract

    What might interest rate liberalization do to intermediation and the cost of capital in China? China's most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23175
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/171.

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    Length: 29
    Date of creation: 01 Aug 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/171

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    Related research

    Keywords: Banking; Banking sector; Banks; Credit controls; Credit demand; Economic models; Financial intermediation; Interest rates;

    This paper has been announced in the following NEP Reports:

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    Cited by:
    1. International Monetary Fund, 2009. "What Drives China's Interbank Market?," IMF Working Papers 09/189, International Monetary Fund.
    2. Nagayasu, Jun, 2009. "Regional Inflation in China," MPRA Paper 24722, University Library of Munich, Germany.
    3. He, Dong & Wang, Honglin, 2011. "Dual-track interest rates and the conduct of monetary policy in China," BOFIT Discussion Papers 21/2011, Bank of Finland, Institute for Economies in Transition.
    4. World Bank & the People’s Republic of China Development Research Center of the State Council, 2013. "China 2030 : Building a Modern, Harmonious, and Creative Society," World Bank Publications, The World Bank, number 12925, March.
    5. Malhar Nabar, 2011. "Targets, Interest Rates, and Household Saving in Urban China," IMF Working Papers 11/223, International Monetary Fund.
    6. Gabe de Bondt & Tuomas Peltonen & Daniel Santabarbara, 2011. "Booms and busts in China's stock market: estimates based on fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 21(5), pages 287-300.
    7. Pang, Iris Ai Jao, 2010. "Were Fed’s active monetary policy actions necessary?," MPRA Paper 32496, University Library of Munich, Germany.
    8. Nathan Porter & Nuno Cassola, 2011. "Understanding Chinese Bond Yields and their Role in Monetary Policy," IMF Working Papers 11/225, International Monetary Fund.

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