China will gradually liberalize the interest rates. After that, the central bank will use an effective transmission mechanism to guide the market by policy rates, said China's central bank governor Zhou Xiaochuan on Thursday.

The bank has prepared two or three groups of tools to manage short-term and medium-term interest rates as policymakers have realized that short-term liquidity may be out of line with medium-term liquidity, he said.

Yuan takes another major step toward full convertibility	Another step toward China's interest rate liberalization