Global Courant
Bank of China is one of the largest state-owned banks in China. Pictured here is a branch in Shanghai on March 27, 2023.
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BEIJING — China’s largest banks cut interest rates for savers on Thursday in a bid to boost growth in an economy where consumption is slowly recovering.
The country’s six state-owned commercial bank websites all showed updated yuan-denominated interest rates for demand deposits of 0.2%, down from 0.25% last year, according to CNBC audits. Demand deposits allow withdrawals at any time.
The banks cut rates on other deposit products, including lowering the interest rate for five-year term deposits from 2.65% to 2.5%, according to their websites. The state-run Securities Times reported the deposit rate cuts in the paper’s Thursday edition.
Those cuts help improve banks’ profitability and provide the basis for the People’s Bank of China to cut other interest rates, Nomura analysts said.
“We believe that the cut in banks’ deposit rates sends a strong signal that the PBOC is paving the way for a cut in the benchmark lending rate (MLF) to lower the LPR,” Nomura’s chief China Economist Ting Lu and a team said in a report. . .
Interest on the medium term credit facility matures on June 15, while the prime rate on the loan is released on June 20.
The most important thing is to reduce unemployment. Households with more confidence in their jobs would spend more.
Zhiwei Zhang
Pinpoint Asset Management, Chief Economist
“This new round of deposit rate cuts, as well as rapidly deteriorating exports, growing real estate distress, continued disinflation and a likely Fed pause, reinforce our conviction of this call for rate cuts,” the analysts said. a 10 basis point cut in MLF and LPR interest rates since mid-May.
The PBOC has not changed the two rates in nine months. The MLF’s one-year yield was 2.75% in May, while the one-year LPR was 3.65% and the five-year LPR was 4.3%.
China has kept its interest rates low, unlike the US and other major countries which have aggressively raised interest rates to curb inflation.
Influence on consumption
Lower interest rates give companies more incentives to borrow. Lowering the deposit rate makes it more expensive for people to keep their money in the bank, and theoretically gives them more incentive to spend.
According to a PBOC survey, 58% of household savers in the first quarter said they would rather save than spend or invest. That was the lowest level in a year.
However, it is not self-evident that lower deposit rates will immediately translate into higher spending.
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The cuts are “beneficial on the margins, but unlikely to be a significant boost to household spending,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in an email.
“The most important thing is to reduce the unemployment rate. Households with more confidence in their jobs would spend more,” he said.
Youth unemployment hit a record high of over 20% in April. China will release retail sales and unemployment data for May on June 15.
