Chinese state banks cut interest on deposits to stimulate the economy

MADRID, 8 Jun.

Chinese state banks cut interest on deposits to stimulate the economy


The six large state banks in China have lowered the interest with which they reward savers' deposits in a decision that aims to stimulate consumption to boost the economy, according to the Chinese newspaper 'Securities Times'.

In this way, as of this Thursday the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Construction Bank of China, the Bank of China and the Bank of Communications, have reduced their sight deposit rates for the 0.25% to 0.2%.

As for fixed-term deposit products, interest rates for 3-month, 6-month, and 1-year terms remain unchanged at 1.25%, 1.45%, and 1.65%, respectively.

On their side, for two-year deposits, banks have reduced rates by 10 basis points, up to 2.05%, while entities will pay 2.45% on three-year deposits and 2.5 % in five-year deposits, below 2.6% and 2.65%, respectively.

Different information published in the press this Tuesday pointed out that the Chinese authorities had asked the main banks in the country to reduce their deposit rates to boost the growth of the second largest economy in the world.

According to the newspaper 'China Daily', the reduction of interest rates on yuan deposits by the country's main banks is expected to help alleviate the pressure caused by the reduction in net interest margins, thus promoting the stability of the financial system while reducing costs for banks, which will contribute to a decrease in the prime rate on loans.

By cutting deposit rates, banks can lower their costs, which would allow them to also lower lending rates, making them more attractive to consumers and businesses while making deposits less attractive.

Beijing has implemented a series of measures to shore up the economy after lifting restrictions over the Covid Zero policy and aims to encourage lending to boost the recovery.

In this sense, after picking up in the first quarter, credit and new loans weakened in April as consumers and companies reduced their indebtedness. Households are saving more and paying down their mortgages, rather than taking on more debt, while businesses grapple with falling demand and declining profits.