Multiple banks have lowered USD deposit rates! Is it reliable to obtain exchange earnings by exchanging Chinese yuan for US dollars? Deposit | Behavior | Interest Rate
Recently, several major banks represented by state-owned enterprises have lowered their US dollar deposit interest rates, attracting market attention. Why has the US dollar deposit interest rate been lowered? What is the impact? Is it reliable to obtain exchange earnings by exchanging Chinese yuan for US dollars? What is the trend of the RMB exchange rate in the next stage? Let's take a look at this issue Quick Q&A ↓
Q
Why has the US dollar deposit interest rate been lowered?
A: Due to the continuous interest rate hikes by the Federal Reserve and other factors, domestic US dollar deposit interest rates have significantly increased since last year. According to the China Monetary Policy Implementation Report for the first quarter of 2023, the weighted average interest rate for one-year US dollar large deposits in China was 5.67% in March 2023, a year-on-year increase of 4.15 percentage points. The weighted average interest rate for one-year US dollar loans in China during the same period was 5.34%, a year-on-year increase of 3.74 percentage points. The deposit interest rate in US dollars has been significantly higher than the loan interest rate.
Q
What is the impact of the decrease in US dollar deposit interest rates?
A: Against the backdrop of declining deposit interest rates, high US dollar deposit interest rates will increase residents' willingness to hold US dollars. Lowering the US dollar deposit interest rate is conducive to reducing the irrational foreign exchange behavior of enterprises and residents towards the US dollar, and promoting the stability of the RMB exchange rate.
Q
Is it reliable to obtain exchange earnings by exchanging Chinese yuan for US dollars?
A: Recently, the exchange rate of the Chinese yuan against the US dollar has continued to depreciate, with the onshore exchange rate falling below the 7.25 mark and a depreciation of nearly 5% within the year. If RMB is converted into US dollars and then deposited into US dollars, can it earn both high interest rates and exchange gains? Industry insiders remind that this approach carries high risks and may not be worth the loss. The benefits brought by the interest rate difference between RMB deposits and USD deposits are easily offset by exchange rate fluctuations.
The Chief Economist of CITIC Securities clearly stated that due to factors such as the periodic rise of the US dollar index, the current RMB exchange rate is at a relatively low historical level. Although one-year deposit interest rates in the US dollar are at a high level, exchange rate fluctuations one year later may offset the gains caused by deposit interest rate differentials. Therefore, the strategy of simply seeking high returns from US dollar deposits by depositors may not be appropriate. depositors should establish a risk neutral philosophy and manage their US dollar positions reasonably according to their own needs.
Q
What is the trend of the RMB exchange rate in the next stage?
A: The report from the Bank of China Research Institute 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 from the Federal Reserve's interest rate meeting in June, it is difficult for the US dollar index to continue to strengthen, and the phenomenon of "inverted" interest rate differentials 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 and orderly, with significantly improved resilience. The exchange rate expectation remains stable, the scale of foreign exchange reserves is reasonable and abundant, and the international balance of payments pattern is basically balanced.