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China’s Central Bank Considering Deposit Rate Cut, FT Reports

By Yinan Zhao

China’s central bank could announce a reduction in its benchmark deposit rate in the coming days, the Financial Times, reported, citing two people familiar with the matter.

The People’s Bank of China is in discussion with commercial lenders on the possible move, the newspaper reported. If it happens, the cut would be the first since late 2015, intended to help improve banks’ profitability and encourage them to lend cheaper funding to businesses and households.

Liu Guoqiang, a deputy governor of the central bank, said in February that policy makers were considering the move.

The main reason is to encourage banks to lend without squeezing their margins, the report said, citing one of the people. The newspaper also said the cuts could come along with more cuts in the central bank’s medium-term loans.

Currently, banks pay savers 1.5% annually for their one-year timed deposits. That compares with consumer inflation of 5.2% in February and the weighted average rate of ordinary loans at 5.49% in the month.

Lowering rates on 175 trillion yuan ($25 trillion) of household and corporate savings would boost bank margins and free up capacity for lenders already feeling pressure from a rise in bad debt. It would also mark an escalation in China’s stimulus efforts from the previous targeted approach, which has so far featured credit easing policies and tax cuts.


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