Multiple banks have lowered their domestic USD deposit interest rates from 4.3% to 2.8%. Finance | Deposit | Interest Rate

Stable exchange rate, coordinated downward trend of US dollar deposit interest rate and RMB deposit interest rate.

On July 3rd, a reporter from First Financial News learned from several major banks that many bank branches had lowered the interest rate quotes for US dollar deposit products, from the highest 4.3% to 2.8%. Products that were originally priced above $50000 and had an annual interest rate of 4.3% have been cancelled.

Li Peijia, Senior Researcher at Bank of China Research Institute, told First Financial that in the context of various deposit interest rate declines, high US dollar deposit interest rates will increase residents' willingness to hold US dollars. Therefore, lowering the US dollar deposit interest rate is beneficial for reducing the irrational foreign exchange purchasing behavior of enterprises and residents towards the US dollar, and promoting the stability of the RMB exchange rate.

Only one 2.8% product

"The interest rate of USD deposit products has just been announced to be lowered today, starting at 2.8% and 5000 USD. I will add you to the whitelist and release the limit tomorrow morning at 9am. As there is only 15 million USD, it may be sold out soon," said the customer manager of CITIC Bank's Beijing branch to First Financial.

Based on the issuance arrangement of foreign currency deposit products provided by the bank in July, the bank's US dollar deposit products are divided into two terms: 1 year and 6 months, with corresponding quotations of 2.5% and 2.5% respectively. The minimum deposit amount is 5000 US dollars, and the total first week limit is 35 million US dollars.

The manager of a branch of Bank of China also told First Financial that "today we just lowered the interest rate of USD deposit products, only one product, and the products with an annual interest rate of 4.3% above USD 50000 have been cancelled."“

A customer manager at a branch of China Construction Bank told reporters that the current quoted interest rate for US dollar deposits is over 5000 US dollars, and it is 2.8% for one or two years. "We don't have products with a 4.3% interest rate anymore."

The reporter learned that, represented by Bank of China, several major domestic banks have lowered their US dollar deposit interest rates since July, which has attracted market attention.

Previously, multiple banks had different minimum deposit amounts and interest rates for their US dollar deposit products. For example, a one-year product with an interest rate of 2.8% ranges from $5000 to $50000; Over $50000, the deposit interest rate for one-year products is 4.3%.

Experts interviewed generally believe that banks lowering the US dollar deposit interest rate can alleviate the problem of "inverted" domestic US dollar deposit and loan interest rates, and on the other hand, the coordinated downward trend of US dollar deposit interest rates and RMB deposit interest rates can help stabilize the RMB exchange rate.

Beneficial for reducing irrational foreign exchange purchases

Against the backdrop of RMB deposit interest rate cuts, many customers are turning their attention to USD deposit products with relatively high yields. However, due to the significant increase in the elasticity of the RMB exchange rate in recent years, fluctuations in the exchange rate can easily offset the gains from US dollar deposits.

According to the reporter's summary, currently the highest interest rate for one-year US dollar savings deposits in major domestic banks does not exceed 2.8%, while the average interest rate for one-year RMB deposits is about 2%, with a spread of about 0.8 percentage points.

The account manager of CITIC Bank told reporters, "If you need to use the US dollars in your hands later, it is necessary to save them. However, if your US dollars are of little use, at the current high point, it is recommended that you settle the foreign exchange."

The above-mentioned account manager of Bank of China also stated, "We would like to remind you that there are still some exchange rate risks involved in USD deposit products."

Li Peijia told First Financial that the domestic USD deposit interest rate and the overseas USD interest rate are two different funding systems determined by different influencing factors. As one of the important tools for bank liabilities, the domestic deposit interest rate is mainly determined by the central bank's policy interest rate and the commercial bank's own debt capacity. Currently, against the backdrop of a central decline in policy interest rates and a comprehensive decline in various fund interest rates, lowering the US dollar deposit interest rate is not only an inevitable move to comply with the central decline in interest rates, but also a necessary measure to prevent fund arbitrage and stabilize exchange rates.

Rich toolbox of stable exchange rate policies

In the first half of 2023, the RMB exchange rate first rapidly appreciated to around 6.7, then maintained a two-way fluctuation within the range of 6.8 to 7, and then depreciated to around 7.1 in mid June, showing an overall two-way fluctuation trend.

According to market analysis, the recent depreciation of the RMB exchange rate is mainly due to the short-term rise of the US dollar index; The inverted spread between China and the United States is widening; The foundation for domestic economic recovery is still not solid, and weak external demand is dragging down exports, affecting current account surplus and foreign exchange balance.

After years of reform and development, the resilience of the renminbi has become prominent in the face of external shocks. The foreign exchange market operates steadily, market entities are more mature, and trading behavior is more rational, providing a good environment for economic development. On June 9th, Pan Gongsheng, Secretary of the Party Committee of the People's Bank of China, stated at the 14th Lujiazui Forum that over the years, foreign exchange market regulators have accumulated a lot of experience in responding to external shocks, and macroeconomic prudential policy tools in the foreign exchange market have become more abundant. Have confidence, conditions, and ability to maintain the stable operation of the foreign exchange market.

Looking ahead to the trend of the RMB exchange rate in the next stage, the Bank of China Research Institute's "2023 Third Quarter China Economic and Financial Outlook Report" believes that the RMB exchange rate will gradually stabilize and have the foundation for stability and strength.

One is that the impact of related spillovers is expected to weaken. Although the two-way fluctuation of the RMB exchange rate has increased recently, after the clear signal released by the Federal Reserve's interest rate meeting in June, the strength of the US dollar index is difficult to sustain, and the phenomenon of inverted interest rate spreads between China and the United States will be improved.

Secondly, domestic economic growth will steadily rebound. With the coordinated efforts of macroeconomic policies, the strength of China's economic recovery will be further strengthened, endogenous growth momentum will continue to improve, resident confidence will continue to repair, and the supporting role of the economy in the foreign exchange market will gradually increase.

Thirdly, cross-border capital flows will generally remain stable. The supply and demand transactions in China's foreign exchange market are rational, orderly, and resilient, with exchange rate expectations remaining stable. The scale of foreign exchange reserves is reasonable and abundant, and the international balance of payments pattern is basically balanced.

In addition, China has abundant macroeconomic policy control tools. In May 2023, the China Foreign Exchange Market Guidance Committee held a meeting and stated that the People's Bank of China and the State Administration of Foreign Exchange will correct pro cyclical and unilateral behavior when necessary to curb speculation and speculation.

The above report points out that the People's Bank of China has a rich toolbox of stable exchange rate policies, such as "countercyclical factor" adjustment, foreign exchange risk reserves, foreign exchange deposit reserves, etc., which provide correction guarantees for future fluctuations in the RMB exchange rate.