Some of China’s largest state-run banks have cut deposit rates for the first time since 2015, as Beijing looks for ways to boost weak growth in the world’s second-largest economy without risking a devaluation of the renminbi.
Government lenders, including the Industrial and Commercial Bank of China, Bank of China, Bank of Communications and Agricultural Bank of China, cut their three-year deposit rates by 0.15 percentage point on Thursday to 2.6 percent, according to the banks. Lenders also cut rates for three-year certificates of deposit by 0.1 percentage point to 1.45 percent.
These measures represent the latest attempt to revive economic growth in China, as policymakers struggle to contain the fallout from the alarming Covid-19 shutdowns and a cascading liquidity crunch in the property sector.
The deposit rate cut comes after China cut its benchmark lending rate in August, cutting the one-year loan base rate 0.05 percentage point to 3.65 percent, and lowering the five-year loan rate, the benchmark rate for mortgages, by 0.15. percentage point. to 4.3 percent, as regulators sought to support small businesses and home buyers.
Economic analysts said the coordinated move by state lenders on Thursday indicated they had been instructed by the People’s Bank of China.
Rising interest rates in the United States stimulated capital outflows from China, as investors traded the renminbi against the dollar, setting the Chinese currency on course for its largest-ever annual decline against the dollar.
“The People’s Bank of China is in a bit of a bind right now,” said Julian Evans-Pritchard, chief China economist at Capital Economics. “They want to provide more monetary support to the economy, but at the same time they don’t want to let the exchange rate go above 7 RMB to the dollar.”
Evans-Pritchard added that lower deposit rates would allow Chinese banks to cut lending rates further without the need for a formal reduction in the loan prime rate that could undermine China’s currency. “It’s kind of a subtle approach to lowering lending rates,” he said.
Analysts at Nomura warned that cuts in China’s deposit interest rates would have “little impact on the economy,” adding that “the keys to economic recovery” are China’s policies on Covid-19 and whether Beijing has taken decisive action to boost housing demand.
Chinese banks have faced shrinking net interest margins on loans this year due to LPR cuts. The cuts in deposit rates will ease pressure on net interest margins and “help stabilize profitability and support capitalization, which is credit positive for banks,” said Nicholas Chu, chief credit officer at Moody’s Investors Service.