In a strategic move to stimulate economic growth, Chinese regulators have instructed banks to reduce their interbank deposit rates, signaling an increasingly aggressive approach to monetary policy. This latest directive aims to free up more funds for economic stimulus and marks another significant step in China’s efforts to reinvigorate its economy.
According to Bloomberg News, China’s interest rate self-disciplinary mechanism, operating under central bank oversight, has mandated that banks align their interbank deposit rates with the seven-day reverse repo rate, currently set at 1.5% annually. This represents a notable reduction from the current practice, where some banks offer rates of 1.8% or higher to attract deposits from financial counterparties.
The timing of this intervention is particularly significant, coming on the heels of major Chinese lenders already lowering their deposit rates across the board last month – their second such reduction this year. These coordinated actions reflect growing concerns about the banking sector’s profitability, as net interest margins (NIM) have shrunk to historic lows.
This latest measure is part of a broader strategy to enable banks to provide more support to the real economy. By reducing the costs banks incur on interbank deposits, regulators hope to create more room for lending and investment in productive sectors. The move also demonstrates Beijing’s commitment to using multiple policy tools to support economic growth, even as banks grapple with the challenges of maintaining profitability while implementing national stimulus measures.
The directive represents a delicate balance between stimulating economic growth and maintaining financial stability, as Chinese authorities continue to navigate the complexities of managing the world’s second-largest economy amid various domestic and international challenges.