Interest rate liberalization in 2 years

China may fully liberate deposit rates within two years as it accelerates financial reforms to support internationalization of the yuan, central bank governor Zhou Xiaochuan said yesterday.

It is the first time the authority has revealed a timetable for long-lasting interest rate reform.

"Many other rates are already liberated, and the opening up of the deposit rate is on schedule," Zhou told reporters. "Personally, I think it's very likely to be realized within one to two years."

Zhou said the process is also being driven by newly emerged Internet financing businesses and wealth management products.

China has been promoting interest rates reform over the past decade to gradually allow financial institutions to decide their saving rates and the price of loans.

The move is essential to prevent debt building up as banks will allocate their money more efficiently, economists have said.

Deposit insurance, a mechanism to protect depositors from bank failures once interest rates are liberated, will "hopefully" be set up this year, Zhou said.

Domestic financial reforms, including capital account liberalization, are also urgent measures to boost internationalization of the currency, Zhou said.

"In these years we will focus on dropping unnecessary restrictions on use of the yuan, which includes laws and regulations, and practical operations," Zhou said. "The People's Bank of China will not excessively push to widen use of the yuan, but rather create a sound policy, credibility and confidence to let people choose to use the currency."

He said international use of the yuan had been growing quickly but its proportion in global trade and investment is still relatively low.

According to global transaction services organization SWIFT, the yuan overtook the Swiss franc to become the seventh most-used currency for payments worldwide in January, with a 1.39 percent share in all global payments.

In comparison, the US dollar accounted for 38.71 percent of global payments.

Analysts said Zhou's comments indicated China was to accelerate financial reform.

"China's financial reforms are likely to advance faster than many had expected in 2014," HSBC said in a report. "We expect this determined push for financial reform to mean a widening of the floating band for deposit rates within 2014, and the introduction of a deposit insurance scheme in the coming months as well."

The report said that financial trials in Shanghai's pilot free trade zone will be a focus and added that more measures will be implemented on easing restrictions on yuan capital account convertibility.