China’s four big state lenders have effectively cut dollar deposit rates, according to people familiar with the matter, at a time when strong demand for the US currency in the banking system helped push the yuan to a six-month low.
The banks have recently lowered the ceiling on the rates — which are a spread over the US Secured Overnight Financing Rate — for both companies and individuals, said the people who requested anonymity discussing private matters. Some of the lenders’ provincial branches now offer around 5.7% on dollar deposits to their biggest clients, down from 6% previously, one of the people said.
The four lenders, namely Industrial & Commercial Bank of China Ltd., Bank of China Ltd., Agricultural Bank of China Ltd. and China Construction Bank Corp., didn’t immediately respond to requests for comment. The news was earlier reported by the Securities Times.
The yuan has dropped 3% against the dollar this year, as the rates differential widened with the Federal Reserve tightening and China keeping policy accommodative. The deposit rate cut, while limited in scope, indicates Chinese policymakers are seeking to manage the scale of its currency’s decline.
Cutting dollar deposit rates is a creative move to reduce the impact of lower yuan interest rates, said Tommy Xie, economist at Oversea-Chinese Banking Corp O39 . However, it is “probably not enough” to deter carry trades that use cheaper yuan borrowings to fund dollar purchases, he said.
China’s central bank and foreign exchange regulator vowed last month to curb currency speculation and look into ways to strengthen management of dollar deposits. Foreign currency held in the Chinese banking system totalled US$881.9 billion ($1.19 trillion) at the end of April.
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Still, “lowering onshore USD deposit rates may drive key accumulators of foreign currency to keep even more of their FX earnings offshore,” Nomura Holdings Inc. strategists led by Craig Chan wrote in a note. That may only add to the current negative balance of payment pressures for China, they said.
