China state banks lower US dollar deposit rates again to stop Renminbi currency slide: Sources

SHANGHAI – China’s major state banks have lowered their US dollar deposit rates for the second time in a month, seven banking sources with direct knowledge of the matter said, as the authorities step up efforts to arrest a slide in the Renminbi currency.

Interest rates offered by the “Big Five” state-owned lenders on most dollar deposits are now capped at 2.8 per cent, down from 4.3 per cent previously, said the people.

The People’s Bank of China (PBOC), 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, Bank of China, Agricultural Bank of China, China Construction Bank and Bank of Communications – did not immediately respond to requests for comment.

Traders and analysts said policymakers, worried that a prolonged renminbi 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 renminbi is one of the worst-performing Asian currencies this year, knocked nearly 5 per cent 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 US dollar in onshore markets,” said Mr Ken Cheung, chief Asian foreign exchange 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 renminbi.

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 per cent cap for large deposits. Banks typically offer higher rates for deposits exceeding US$1 million (S$1.35 million).

The PBOC has recently moved to slow the renminbi’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 per cent.

Sources also told Reuters last week that the central bank had surveyed some foreign banks about the interest rates they offered to their clients for dollar deposits.

The PBOC said last Friday it would continue to keep the renminbi basically stable and guard against the risk of large exchange rate fluctuations. REUTERS



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