China's central bank governor Zhou Xiaochuan at a news conference on March 12, 2015. [Photo: Xinhua]

It's being widely suggested the Chinese government is preparing to get rid of its long-standing cap this year on the deposit rates commercial banks provide bank customers.

This past month, the People's Bank of China decided to expand the cap for increasing Renminbi deposit rates by 10-percent.

This means commercial banks can now offer deposit interests rates at 1.3-times the benchmark, up from the previous 1.2.

Central Bank Governor Zhou Xiaochuan now says this move is most likely going to be followed by a complete removal of the cap this year.

"The cap would probably be removed if a proper opportunity pops up this year. In this way, the last step expected by everybody can be fulfilled. It's very likely to happen."

The central bank did away with the caps on bank lending interest rates back in July of 2013.

However, the central bank has been moving much more gingerly with deposit rates.

One concern is if banks run into trouble and decide to cut their savings rate, there could be a massive rush on withdrawals of bank savings, creating a potential economic crisis.

In an attempt to address this concern, the central bank is now creating a deposit insurance scheme.

Deposit insurance is expected to be unveiled within the next 3-months.

Some observers have been expecting the central bank to hold off on liberalizing deposit rates until next year, given that a large amount of foreign capital flowed out of China this past year amid the downturn of the economy.

However, Central Bank Governor Zhou Xiaochuan says the hot-money outflows they saw this past year are still within their tolerance range.

"It's called short-term investment hot money. The volume of it is not very easy to notice, but it definitely exist. But as for China's current situation, the movement of hot money isn't that severe."

However, with the US Federal Reserve poised to raise interest rates this year, it has begun raising questions about what the likely appreciation of the US dollar against the yuan might do to capital flows in China.

PBOC chief Zhou Xiaochuan suggests the risk is reasonable, saying they fully expect the interest rate increase in the US to be moderate, meaning any speculative rush on the US dollar would be minimal.

"The signal released by the U.S. Fed and its actions are very cautious. They have used it before. They have patience. There will be some opportunities to manipulate investors' financial assets. However, it shouldn't make a huge difference or create huge opportunities for speculation. So we are not worried about it. Based on what we've been monitoring, it will not pose a big threat."

Tightly-controlled deposit rates in China have tied commercial banks' hands when it comes to attracting long-term savers, as the savings rates have traditionally been below the rate of inflation, meaning long-term bank savings actually lose money.

This has led to many in China looking for alternative investment avenues, such as the property sector, and in recent years, wealth management products which offer a better rate of return.

However, a number of these products can fall beyond the oversight of the authorities, with significant amounts of money sneaking its way into the property sector, which has increased the overall risk to the economy.

Ill-advised investments through risky wealth management products called Collateralized Debt Obligations in the United States over a decade ago eventually became the catalyst for the most recent global economic meltdown.