FameEX Hot Topics | Chinese State-Owned Banks Reduce Dollar Deposit Rates: Refute Allegations of Government Influence

Major Chinese state-owned banks have recently made the decision to decrease interest rates on U.S. dollar deposits. However, they firmly denied any allegations suggesting that their actions were influenced by the Chinese government, asserting that the rate cuts were solely driven by market forces.
In response to reports from certain news outlets claiming government influence, the banks emphasized that the rate reductions were driven by market dynamics. One such report from Reuters stated that a self-regulatory body overseen by China's central bank had instructed major state-owned banks to lower dollar deposit interest rates in an effort to strengthen the Chinese yuan. However, the banks refuted these claims, stating that their decisions were independent and not influenced by government directives. The Global Times also reported that some bank insiders viewed the rate cuts as a self-regulatory measure aimed at maintaining stability in the dollar-yuan exchange rate, which has experienced a decline of over 6% against the USD since the beginning of the year.

One bank manager at a branch of Bank of China in Shanghai revealed that the bank had reduced its one-year dollar deposit rate from 5% to 4.3% for deposits exceeding $50,000 starting from Monday, with a rate of 2.8% for deposits below $50,000. The manager anticipated that the deposit rate would remain steady in the near term but gradually decrease over time. The manager cited several factors influencing the rate reductions, including the volatility of global interest rates and an increase in dollar deposits held by the banks.

Similarly, a manager at an Industrial and Commercial Bank of China (ICBC) branch in Beijing confirmed significant cuts to dollar deposit rates in anticipation of the U.S. Federal Reserve pausing interest rate hikes. For instance, the rate for $30,000 deposits was reduced from 4.8% on Sunday to 2.8% on Monday. It was also noted that some Chinese banks had lowered rates on yuan deposits. A manager at a Shanghai branch of Ping An Bank stated that the bank was considering reducing its three-year yuan deposit rate from 3.25% to below 3% in the coming week. Reuters reported that China's largest banks had already lowered interest rates on yuan deposits.

Xi Junyang, a professor at the Shanghai University of Finance and Economics, explained that Chinese banks possess ample dollar reserves, eliminating the need to offer high-interest rates to attract deposits. Xi further highlighted that the expectation of a decrease in U.S. interest rates provided Chinese banks with the flexibility to make this adjustment, reiterating that the decision was market-driven.

Tommy Xie, an economist at Oversea-Chinese Banking Corp., characterized the reduction in dollar deposit rates as a strategic approach to mitigate the impact of lower yuan interest rates. However, he cautioned that this measure alone might not be sufficient to discourage carry trades utilizing cheaper yuan borrowings to fund dollar purchases.

Nomura Holdings' strategists expressed concerns in a recent note that "lowering onshore USD deposit rates may drive key accumulators of foreign currency to keep even more of their FX earnings offshore," potentially exacerbating China's negative balance of payment pressures.
Overall, Chinese state-owned banks have implemented these rate cuts on U.S. dollar deposits, refuting claims of government influence and attributing the decision to market-driven factors. The move aims to adapt to global interest rate fluctuations and maintain stability in the dollar-yuan exchange rate.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.