After a number of mainland commercial banks recently lowered their RMB deposit interest rates one after another, major state-owned banks including Industrial and Commercial Bank of China and Bank of China have also announced that they have lowered their US dollar deposit interest rates. Experts said that the bank’s move can alleviate the problems of domestic US dollar deposit and loan interest rate “inversion” on the one hand; on the other hand, the simultaneous reduction of US dollar deposit interest rate and RMB deposit interest rate will also help stabilize the RMB exchange rate.
China Business News reported that the survey found that the current one-year dollar savings deposit interest rate of major domestic banks does not exceed 2.8%, while the average one-year RMB deposit interest rate is about 2%, and the interest rate difference is about 0.8 percentage points.
A certain degree of “inversion” in the domestic US dollar deposit and loan interest rates is one of the main reasons why banks have recently lowered the domestic US dollar deposit interest rate. Affected by the continued interest rate hikes in the United States, since 2022, the interest rate on domestic dollar deposits has risen significantly. According to the “Monetary Policy Implementation Report” for the first quarter of 2023, in March 2023, the weighted average interest rate of domestic one-year USD large deposits was 5.67%, an increase of 4.15 percentage points from the same period of the previous year. In the same period, the weighted average interest rate of domestic one-year US dollar loans was 5.34%, an increase of 3.74 percentage points over the same period of the previous year.
Wen Bin, Chief Economist of Minsheng Bank, said that in the current situation that the US Federal Reserve will continue to raise interest rates, the bank’s appropriate reduction of the domestic US dollar deposit interest rate will help maintain the competition order in the domestic US dollar deposit market and straighten out the domestic US dollar deposits. The interest rate pricing mechanism alleviates problems such as the “inversion” of domestic US dollar deposit and loan interest rates.
In addition, since June, six major state-owned banks including ICBC, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank, as well as some national joint-stock banks, have lowered their RMB deposit interest rates. There is a certain degree of coordination in the reduction of RMB deposit interest rates. Wen Bin said that this is conducive to reducing the demand for US dollar deposits of domestic corporate residents, and has positive significance for maintaining the basic stability of the RMB exchange rate.
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