Liberation of lending rates is a milestone for financial market but timely relaxing of controls on deposit rates also needed

China's central bank announced interest rate reforms on Friday that are a milestone in China's financial marketization. It removed the floor on lending rates, allowing banks to cut rates as much as they like to attract customers, scrapped the controls on bill discount rates and lifted the ceiling on lending for rural banks. However, it did not remove the ceiling on deposit rates.

There was little shock to the market as the move had long been anticipated and the news was announced after the closing of stock markets on Friday, so there were two days for the market to digest the changes.