By Winni Zhou and Ryan Woo
July 4, 2023 2:13 PM GMT+7
U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo/File Photo
SHANGHAI/BEIJING, July
4 (Reuters) - China's major state banks have lowered their dollar deposit rates
for the second time in a month, seven banking sources with direct knowledge of
the matter said, as authorities have stepped up efforts to arrest a slide in
the yuan.
Interest rates offered
by the "Big Five" state-owned lenders on most dollar deposits are now
capped at 2.8%, down from 4.3% previously, said the people, who declined to be
named as they were not authorised to speak to the media.
The People's Bank of
China, which typically issues guidance on dollar deposit rates to state banks,
did not immediately comment on the matter.
The lenders -
Industrial and Commercial Bank of China (601398.SS),
, Bank of China (601988.SS),
, Agricultural Bank of China (601288.SS),
, China Construction Bank (601939.SS),
and Bank of Communications (601328.SS),
- did not immediately respond to requests for comment.
Traders and analysts
said policymakers, worried that a prolonged yuan slide could both discourage
foreign investment and spur an outflow of funds abroad, want to bring down
dollar deposit rates - which typically track offshore rates - towards domestic
rates, which have been cut to aid the flagging economy.
The yuan is one of the
worst-performing Asian currencies this year, knocked nearly 5% lower against
the dollar by a slowdown in China's economy and widening yield differentials
with the United States.
"It shows that
the move is to narrow the interest rate advantage of the U.S. dollar in onshore
markets," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
"It is likely
aiming to prevent stockpiling dollars and encouraging (foreign exchange)
settlements."
The lower rates could
both discourage households from putting savings into higher-yielding dollar
deposits and nudge Chinese firms, especially exporters, to settle foreign
exchange receipts in yuan.
The new rates came
into effect on July 1, said two of the sources, adding that some of the banks
were not offering rates above the 2.8% cap for large deposits. Banks typically
offer higher rates to deposits exceeding $1 million.
The PBOC, China's
central bank, has recently moved to brake the yuan's slide against the dollar,
setting stronger-than-expected daily fixings for the currency, while state
banks have also been spotted selling dollars on occasion in both the onshore
and offshore markets, trading sources said.
The latest cut in
dollar deposit rates was the second in barely a month. In early June, sources
told Reuters the
big state banks had lowered such rates as much as 100 basis points from the
previous ceiling of 5.3%.
Sources also
told Reuters last
week that the central bank has surveyed some foreign banks about the interest
rates they offer to their clients for dollar deposits.
The PBOC said last
Friday it would continue to keep the yuan basically stable and guard against
the risk of large exchange rate fluctuations.
Some currency traders
also said the cuts in dollar deposit rates would ease pressure on commercial
lenders' net interest margin, as banks' dollar deposit rates had risen above
lending rates before the recent adjustments.
The latest PBOC data
showed that the weighted-average interest rate on large dollar deposits stood
at 5.67% in March, up 4.15 percentage points from a year earlier, while the
weighted-average dollar lending rate was up only 3.74 percentage points at
5.34%.
Reporting by Winni
Zhou, Samuel Shen and Jindong Zhang in Shanghai, Rong Ma and Ryan Woo in
Beijing, John Geddie in Tokyo; Editing by Edmund Klamann
Our Standards: The Thomson Reuters Trust Principles.
People's
Bank of China (PBoC)
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