Bank of China is one of the major state-owned banks in China. Pictured is a branch in Shanghai on March 27, 2023.
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BEIJING — China’s biggest banks on Thursday cut interest rates for savers in a bid to spur growth in an economy where consumption has recovered slowly.
The websites of the country’s six state-owned commercial banks all show an updated renminbi demand deposit rate of 0.2 percent, down from 0.25% last year, according to the survey. by CNBC. Deposits allow withdrawals at any time.
Banks have reduced interest rates on other deposit products, including reducing the five-year term deposit rate to 2.5% from 2.65%, according to their website. State run Securities Times reported the cut in deposit rates in the fifth edition of the newspaper.
Those cuts help improve the profitability of banks and set the stage for People’s Bank of China to another rate cut, Nomura analysts said.
“We believe the cuts in the deposit rate by banks send a strong signal that the PBOC is paving the way for a cut in the benchmark lending rate (MLF) to guide the LPR,” said China Economist. Nomura chief Ting Lu and a team said in a report. .
The average loan prime rate expires on June 15, while the loan prime rate is scheduled to be announced on June 20.
The more important issue is reducing the unemployment rate. Households with a stronger belief in their work spend more.
Zhang Zhiwei
Pinpoint Asset Management, chief economist
“This new round of deposit rate cuts, as well as rapidly deteriorating exports, rising asset distress, ongoing inflation and the potential for growth,” the analysts said. The Fed pauses, increasing our confidence in this call for a rate cut.” 10 basis points cut to MLF and LPR rates since mid-May.
The PBOC has not changed two rates in nine months. The MLF one-year interest rate was 2.75% in May, while the one-year LPR was 3.65% and the five-year LPR was 4.3%.
China has kept interest rates low, in contrast to the United States and other major countries that have aggressively raise interest rates to curb inflation.
Impact on consumption
Lower interest rates give businesses more incentive to borrow. A cut in the deposit rate makes it more expensive for people to keep money in the bank, and should theoretically give them more incentive to spend.
In the first quarter, 58% of household depositors said they would rather save than spend or invest, according to a PBOC survey. That is the lowest level in a year.
However, it does not mean that lower deposit rates will immediately translate into larger spending.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in an email that the cuts were “positive in margin but unlikely to significantly boost household spending”.
“The more important issue is reducing unemployment. Households with stronger faith in their jobs will spend more,” he said.
The youth unemployment rate hit a record high in April at more than 20%. China is set to release data on retail sales and unemployment rate for May on June 15.
