(Reuters) – China encouraged banks this month to further cut interest rates on deposits, seven people with knowledge of the matter said, in the latest effort to channel the country’s vast reserve of savings into more productive spending and investment.
Members of China’s “self-regulatory interest rate mechanism,” mostly banks, met this month and were asked to lower deposit rates, according to two participants and two other bank sources briefed on the meeting.
China’s central bank does not set bank fees directly, but guides them through the market-based mechanism, which comprises large and small banks. Guidance comes when banks and the economy are weighed down by huge inflows of savings and deposits.
Activity in the world’s second-largest economy has gained momentum since the withdrawal of a stringent Covid-19 health policy in December, but investors remain cautious as companies grapple with debt risks, structural problems and a slowing global economy.
“The message is that banks need to collectively lower deposit rates,” said a person with knowledge of the directive.
Money is being pumped into the banking system, but “what’s the point of people saving every penny they get instead of spending or investing?” the source said.
One of China’s “Big Four” state creditors plans to cut some personal and corporate rates next week, another person briefed on the plans told Reuters.
Other people familiar with the meeting said the mechanism called for a cut of approximately 10 basis points in weighted average rates on time deposits in the quarter from a year earlier, and some banks were asked to reduce high-yield deposit products.
The People’s Bank of China did not immediately respond to Reuters’ request for comment.
Several small and medium-sized Chinese lenders cut deposit interest rates this month after larger rivals did last year. The latest guidance is expected to trigger a new round of cuts.
(Reporting by Shanghai and Beijing newsrooms)
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