China's central bank will start to issue a daily benchmark interest rate from January 1 to give more play to market forces in rate setting, said an official with the bank Sunday.

The benchmark interest rate will be based on the quotations for various inter-bank lending and borrowing rates at different maturities offered daily by 16 commercial banks with good credit, said Wu Xiaoling, deputy governor of the People's Bank of China.

The move aims to bring the force of prices into play in adjusting the country's financial markets, said Wu. The central bank has been controlling deposit and loan rates as a result of weak regulation in current financial markets, added Wu.

The control has ensured stable operation of commercial banks but cut off the connection between the monetary market and interest rates, said Wu.

As China will meet its commitment to the World Trade Organization to fully open up its banking sector by the end of the year domestic financial institutions have to improve their competitive edge to face the challenges from foreign rivals, Wu noted.

The central bank has been experimenting with the inter-bank offered rate quotation in Shanghai since October 8.

Wu said the central bank will promote the marketing of interest rates actively and prudently by gradually easing limits on benchmark deposits and loan rates and making the interest rate mechanism more flexible.

(Xinhua News Agency December 11, 2006)