SHANGHAI (Reuters) – Chinese commercial banks have made rare cuts to their foreign currency deposit rates in recent weeks to reflect the easier monetary policies of overseas economies grappling with the fallout from the coronavirus pandemic.
The move is expected to encourage Chinese companies and households to covert their often large foreign currency holdings to yuan and dampen speculative purchases of foreign currencies, analysts said.
Bank of Communications said on Saturday that it was lowering interest rates on deposits below $3 million in certain foreign currencies.
The one-year dollar deposit rate at all of China’s “big five” state banks now stands at 0.35% which compares with levels of 0.75-0.8% previously, according to data from the lenders.
In contrast, the benchmark one-year yuan deposit rate is much higher at 1.5%. Long betting that the yuan would eventually depreciate, Chinese companies and households have heavily invested in foreign currency assets.
Chinese foreign currency deposits stood at $819.5 billion as of end-August, up $25.8 billion from the previous month, and marking the highest level since March 2018. But as overseas economies embark on aggressive monetary easing, cutting rates to zero or negative, foreign capital has flowed into China – the only major economy expected to show growth this year. As a result, the yuan
(Reporting by Han Xiao, Winni Zhou and Andrew Galbraith; Editing by Edwina Gibbs)
