China asks big banks to cut deposit rates to boost growth

Chinese authorities asked the nation's biggest banks to lower their deposit rates for at least the second time in less than a year, according to people familiar with the matter, marking an escalated effort to boost the world's second-largest economy.

State-owned lenders including Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and Bank of Communications Co. were last week advised to cut rates on a range of products, including on demand deposits by 5 basis points and three-year and five-year time deposits by at least 10 basis points, said the people, who asked not to be identified. The request was communicated through the central bank's interest rate self-disciplinary mechanism, the people said.

Banks are assessing the request and may adjust rates as early as this week, said the people, adding that the move isn't mandatory. Big lenders currently offer an annualized rate of 0.25% demand deposits, and 2.6% and 2.65%, respectively, on three-year, five-year time deposits.


The People's Bank of China declined to immediately comment.

"China's further monetary easing would have limited scope, given the Sino-US monetary policy split and the less effective monetary transmission," said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. "Cutting deposit rates could provide incentive and capacity to banks for more credit support. It also means reduced chance of policy rate cuts in the near term."

China's 10-year government bond yield slipped 1 basis point to 2.70% after the news. The onshore yuan weakened as much as 0.3%, touching a low of 7.1253 per dollar.

The guidance, which follows similar rate reductions in September last year, will help alleviate pressure on lenders as they strive to balance shrinking margins and government directives to beef up lending support to the economy.