China Authorities Push Banks To Cut Interest Rates

Based on people with knowledge of the situation, China encouraged banks this month to slash deposit interest rates even further, in the latest effort to redirect the country's massive savings pool into consumption and more productive investments.

According to two attendees and two additional bank insiders who were closely briefed on the meeting, members of China's "interest rate self-regulatory mechanism," largely banks, gathered this month and were asked to lower deposit rates.

China's central bank does not set bank rates directly, but rather guides them through a market-based process comprised of large and small banks. The advice comes as banks and the economy struggle to cope with massive inflows of money and deposits.

The world's second-largest economy has picked up steam following the removal of strict zero-COVID policy in December, but investors are wary as corporations deal with debt problems, structural issues, and a slowing global economy.

"The message is that banks must work together to reduce deposit rates," one person familiar with the instruction said.

Money is being pumped into the banking system, but "what's the point if people save every cent they get instead of spending or investing?" he wondered.

Another person briefed on the plans told that one of China's "big four" state lenders plans to decrease some personal and corporate rates next week. "Call deposits" and "agreement deposits" are among the products that will be impacted.

Other sources involved with the meeting said the mechanism requested an approximately 10-basis-point reduction in weighted average term deposit rates in the third quarter compared to the previous year, and some banks were pressured to reduce high-yield deposit products.