Cutting deposit rates to support the economy

BEIJING: Chinese authorities have urged commercial lenders to lower their deposit rates in the government’s latest effort to shore up the world’s second-largest economy, according to sources.

It was recommended to banks that they reduce premiums offered to savers over the benchmark deposit rate by 10 basis points across all tenors, said the sources.

The request was communicated through the so-called interest rate self-disciplinary mechanism that’s overseen by China’s central bank.

While not mandatory, lenders that follow the request will have their scores boosted when the People’s Bank of China (PBoC) does its quarterly macro-prudential assessment, the sources said.

Banks that choose not to comply will not have their scores deducted, they added.

The PBoC didn’t immediately respond to a request for comment.

China’s largest banks currently pay 50 basis points above the benchmark rates for time deposits, while smaller banks pay 75 basis points more.

The move will help lower banks’ funding costs as policy makers again called for the financial industry to help millions of businesses struggling amid lockdowns aimed at curtailing the highly-infectious Omicron variant.

The move could also pave the way for a reduction in the loan prime rate, the benchmark lending rate, when it’s announced next week.

By reducing how much they pay for deposits, banks would be able to charge less for loans while keeping their margins unchanged.

Earlier yesterday, the PBoC refrained from cutting interest rates on one-year policy loans that it extends to commercial banks, disappointing analyst who had expected a cut.

Only six of the 22 economists surveyed by Bloomberg ahead of the announcement had predicted that rates would be kept unchanged, with a majority expecting a reduction of five to 10 basis points. — Bloomberg