China's last remaining interest rate limits were officially dropped in October 2015 (see BOFIT Weekly 44/2015). While it has been ostensibly left to commercial banks to set their own interest rates on loans and deposits, the reality is that the People's Bank of China continues to determine the price ranges of banks through its "window guidance" policy. At PBoC and commercial banks meetings, the central bank can extend lending limits and objectives, as well as provide guidance on pricing of loans and deposits. The central bank additionally continues to issue reference rates for loans and deposits, even if they have not been adjusted since interest rates were deregulated.
Commercial banks also agree among themselves on pricing of loans and deposit rates. China Daily reported in April that commercial banks had discussed in their meetings the possibility of raising deposit interest rate range to 140–150 % of the PBoC reference rate. The current range is 130–140 % of the reference rate. In addition, since the deregulation of rates, lending rates have closely tracked reference rates. According to PBoC figures, over two-thirds of new bank loans are priced at 90–130 % of the reference rate. The average interest rate on new bank loan at the end of 2017 was 5.7 % p.a., and the one-year reference lending rate was 4.35 %.
New central bank governor Yi Gang has stated that China will continue transition to a market-based interest-rate regime and end the current dual-rate market. Money markets are currently free to set interest rates, but the retail rates are still in the control of the central bank. News agency Caixin reported in April that the PBoC had decided to let commercial banks set higher interest rates on certificates of deposit, but the decision did not extend to bank deposits. For example, large commercial banks can now offer interest rates on their deposit certificates at up to 150 % of the reference rate. The previous ceiling was 140 %.