China’s major state banks have lowered their dollar deposit rates for the second time in a month, seven banking sources with direct knowledge of the matter said, as authorities have stepped up efforts to arrest a slide in the yuan. | Reuters
Traders and analysts said policymakers, worried that a prolonged yuan slide could both discourage foreign investment and spur an outflow of funds abroad, want to bring down dollar deposit rates – which typically track offshore rates – towards domestic rates, which have been cut to aid the flagging economy.
“It shows that the move is to narrow the interest rate advantage of the U.S. dollar in onshore markets,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.The lower rates could both discourage households from putting savings into higher-yielding dollar deposits and nudge Chinese firms, especially exporters, to settle foreign exchange receipts in yuan.The new rates came into effect on July 1, said two of the sources, adding that some of the banks were not offering rates above the 2.
The latest cut in dollar deposit rates was the second in barely a month. In early June, sources told Reuters the big state banks had lowered such rates as much as 100 basis points from the previous ceiling of 5.3 percent. The PBOC said last Friday it would continue to keep the yuan basically stable and guard against the risk of large exchange rate fluctuations.
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