China state lenders lower dollar deposit rates for second time in a month: Sources

SHANGHAI/BEIJING: 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 per cent, down from 4.3 per cent previously, the sources said.

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, 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 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, Reuters reported

The yuan 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 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 per cent cap for large deposits. Banks typically offer higher rates to deposits exceeding $1 million.

The PBOC 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. Agencies