Tang Yayun, a Shanghai-based analyst at Northeast Securities Co, said: "We are just a few steps away from complete interest rate liberalization."

As the FTZ trial went smoothly and helped corporate customers and lenders, the regulators decided to expand it to other parts of the city, said the PBOC. The policy will be expanded nationwide if it proves successful in Shanghai, the central bank said.

Wang Zhenying, head of the statistics and research department at the PBOC's Shanghai Head Office, said the foreign currency deposit market in Shanghai has been stable since the policy was introduced in the FTZ in March.

Deposit rates offered by lenders didn't fluctuate wildly, and there have been no massive deposit flows between accounts or among lenders.

"Deposit flows in and out of the FTZ, which were a concern, did not occur. Lenders have also improved their risk management and pricing competence," said Wang.

Bank of China on Thursday was offering 0.75 percent on one-year dollar deposits. The rate set by Bank of Communications Ltd was 0.8 percent, compared with 0.95 percent at HSBC Holdings Plc and 1.25 percent at Citigroup Inc.

Zhang Xin, deputy director of the PBOC's Shanghai Head Office, said a self-regulating committee has been formed to avoid cutthroat competition among lenders.

The committee members include State-owned lenders, foreign capital lenders and joint-equity commercial banks.

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