China takes next step to free up rates with deposit certificates

In the latest move to free up interest rates, China's central bank will allow lenders to issue certificates of deposits to individuals and companies.

PHOTO: REUTERS

JUN 3, 201510:03 AM

[BEIJING] In the latest move to free up interest rates, China's central bank will allow lenders to issue certificates of deposits to individuals and companies.

Such certificates, known as CDs, are tradable deposit agreements that give China's savers more choices and lenders new ways to attract deposits as they compete for funds with shadow- banking firms that issue trust products. The minimum size for individuals will be 300,000 yuan (US$48,400) and 10 million yuan for corporates, according to the rules published by the People's Bank of China Tuesday.

Interest rates of CDs can be fixed or floating, and some of the CDs can be bought or sold back to the issuer or to third parties. China is freeing up interest rates to make them more reflective of market forces and to ease the financial repression that has seen savers subsidize debt-fueled investment. The PBOC has this year raised the cap on what banks can pay depositors and introduced a deposit insurance fund.

"The ongoing move toward interest rate liberalization reinforces our belief that the PBOC will keep market interest rates low, as we think the central bank looks to reduce risks of a sharp tightening in banks' funding cost," Goldman Sachs Group Inc. economists wrote in a note. "We now think it is quite probable that the interest rate liberalization process will be completed before the end of this year." Such reforms may bolster China's push to have the yuan included in the International Monetary Fund's Special Drawing Rights basket when a review is completed this year, the economists wrote. SDR status means the yuan would join the US dollar, euro, yen and British pound as an official reserve currency, furthering the currency's internationalization.

Next on the to-do list: The PBOC must choose a policy target rate to anchor short-term interest rates and to generate a market-driven yield curve, Australia & New Zealand Banking Group Ltd. economists including Liu Li-Gang wrote in a note.

"This policy target rate will be used as the basis for banks to set reference rates, which then will be used to price financial derivatives and products," they wrote.

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Australia's economy expands faster than expected; currency gains

Australia's economy expanded at a faster pace than economists forecast in the first three months of the year, supporting the central bank's decision Tuesday to keep rates steady. 

PHOTO: BLOOMBERG

JUN 3, 20159:53 AM

[SYDNEY] Australia's economy expanded at a faster pace than economists forecast in the first three months of the year, supporting the central bank's decision Tuesday to keep rates steady. The local currency climbed.

Gross domestic product advanced 0.9 per cent from the final three months of 2014, when it rose 0.5 per cent, government data showed in Sydney Wednesday. That compared with the median of 31 estimates for a 0.7 per cent gain.

The report spans a period when Australia ended an 18-month pause in interest-rate cuts and the currency slid 7 per cent, improving companies' competitiveness and lifting consumers' spirits.

Even so, firms in Australia - an engine room of the decade-long global commodity boom - plan to cut investment in the next 12 months by the most on record, betting they can meet demand with existing capacity amid weak wage growth.

While this is "a good start to 2015, we expect growth to remain below trend this year," Felicity Emmett, a senior economist at Australia & New Zealand Banking Group Ltd who forecast a 0.9 per cent gain, said ahead of the release. "With the outlook for non-mining investment under a cloud and consumer spending growth likely to be damped by soft household income growth, it is unlikely" to fully offset weakness in mining investment and soft public demand, she said.

The local dollar traded at 78.06 US cents at 11.35am in Sydney from 77.73 cents before the release.

Compared with a year earlier, the economy expanded 2.3 per cent in the first quarter, the report showed. The median forecast of economists was for a 2.1 per cent rise.

EXPORTS JUMP

Exports jumped 5 per cent in the first quarter, adding 1.1 percentage points to GDP growth, the report showed. Household spending advanced 0.5 per cent last quarter, adding 0.3 point to the expansion, it showed. Non-dwelling construction fell 4.9 per cent, subtracting 0.4 percentage point from GDP growth.

The nation's household savings ratio fell to 8.3 per cent in the first quarter from a revised 8.8 per cent in the final three months of last year, it showed.

Australia's "economy has continued to grow, but at a rate somewhat below its longer-term average," central bank Governor Glenn Stevens said Tuesday after leaving rates at a record-low 2 per cent.

"Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors."

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