The People's Bank of China

The People's Bank of China, China's central bank, announced Thursday (Oct. 28) that it would raise both lending and deposit interest rates 0.27 percentage point as of Oct. 29.

The one-year deposit interest rate will increase from 1.98 percent to 2.25 percent, while the one-year lending interest rate will rise from 5.31 percent to 5.58 percent.

The central bank will also broaden the floating degree of the lending interest rate of RMB -- the Chinese currency -- and allow the RMB deposit interest rate to float downward.

According to a press release posted on the central bank's official website, deposit and lending interest rates in other categories will also be adjusted accordingly.

The adjustment extent for medium and long-term interest rates will be larger than that for short-term rates, the release said.

The central bank will also broaden the floating scope of lending interest rate for financial institutions. It will no longer set the ceiling of lending interest rate for financial institutions, excluding credit cooperatives in both urban and rural areas.

The lift limit of the lending interest rate will still be 0.9 times of the benchmark rate.

For urban and rural credit cooperatives, the central bank said, the upper limit of their lending interest rate will be maximally 2.3 times of the benchmark interest rate. Their degree for rate reduction will remain unchanged. Taking the one-year lending interest rate of 5.58 percent for example, the urban and rural credit cooperatives could set the lending interest rate between 5.02 percent and 12.83 percent.

Allowing the RMB deposit interest rate to float downward means the rate for financial institutions can float within the extent of deposit benchmark rate.

The central bank adjusts interest rates in a bid to consolidate the already realized results of macro-economic control measures adopted by the central government, and also to maintain the development momentum of the national economy for sustained, rapid, coordinated and healthy growth, said a leading official with the central bank.

The move will enable the economic means to play a bigger role in resource allocation and macro-economic control, said the official.

It is also an important step forward to leave interest rates to market forces, improve the pricing capability of financial institutions and guard against financial risk, the official said.

The official said that the central bank has made "comprehensive and thorough preparation" to ensure the smooth implementation of the adjustment.

All financial institutions will be required to adopt the adjusted benchmark rate and floating scope, improve relevant risk management and set deposit and lending interest rates in line with their business performance and capital costs.

The official warned financial institutions to raise rates cautiously and avoid blind rate rise following the adjustment.

The central bank will strengthen the monitoring, analysis and management of interest rates, and provide coordination and guidance to the institutions for the rate adjustment, the official said.

Editor: Olivia