China directs some banks to slash deposit rates

According to insiders, Chinese authorities have recently instructed the country’s largest banks to reduce their deposit rates for the second time in less than a year in an attempt to stimulate economic growth.

Reports indicate that state-owned banks, including Bank of China, Industrial & Commercial Bank of China, and Bank of Communications, were advised last week to lower rates on various products.

Specifically, the banks were encouraged to decrease rates on demand deposits by 5 basis points and on three-year and five-year time deposits by at least 10 basis points.

This request was made through the central bank’s interest rate self-disciplinary mechanism. Although the banks are currently assessing the suggestion, they may make rate adjustments as early as this week, even though compliance is not mandatory.

In May, China instructed its “big four” state-owned banks to lower the interest rate ceilings on certain deposits, as reported by Reuters and confirmed by three sources familiar with the matter.

In an effort to alleviate costs amid sluggish loan demand and increasing growth risks, several smaller and medium-sized banks in China had already reduced their deposit interest rates in April.

These moves by Chinese authorities and banks reflect ongoing efforts to support the economy, manage risks, and encourage lending in order to bolster economic growth.