CHINA’S major state banks have lowered their US dollar deposit rates for the second time in a month, seven banking sources with direct knowledge of the matter said, as authorities have stepped up efforts to arrest a slide in the yuan.

Interest rates offered by the “Big Five” state-owned lenders on most US dollar deposits are now capped at 2.8 per cent, down from 4.3 per cent previously, said the people, who declined to be named as they were not authorised to speak to the media.

The People’s Bank of China (PBOC), which typically issues guidance on US dollar deposit rates to state banks, did not immediately comment on the matter.

The lenders – Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, China Construction Bank and Bank of Communications – did not immediately respond to requests for comment.

Traders and analysts said policymakers, worried that a prolonged yuan slide could both discourage foreign investment and spur an outflow of funds abroad, want to bring down US dollar deposit rates – which typically track offshore rates – towards domestic rates, which have been cut to aid the flagging economy.

The yuan is one of the worst-performing Asian currencies this year, knocked nearly 5 per cent lower against the US dollar by a slowdown in China’s economy and widening yield differentials with the US.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“It shows that the move is to narrow the interest rate advantage of the US dollar in onshore markets,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

“It is likely aiming to prevent stockpiling US dollars and encouraging (foreign exchange) settlements.”

The lower rates could both discourage households from putting savings into higher-yielding US dollar deposits and nudge Chinese firms, especially exporters, to settle foreign exchange receipts in yuan.

The new rates came into effect on Saturday (Jul 1), said two of the sources, adding that some of the banks were not offering rates above the 2.8 per cent cap for large deposits. Banks typically offer higher rates to deposits exceeding US$1 million.

The PBOC, China’s central bank, has recently moved to brake the yuan’s slide against the US dollar, setting stronger-than-expected daily fixings for the currency, while state banks have also been spotted selling US dollars on occasion in both the onshore and offshore markets, trading sources said.

The latest cut in US dollar deposit rates was the second in barely a month. In early June, sources told Reuters the big state banks had lowered such rates as much as 100 basis points from the previous ceiling of 5.3 per cent.

Sources also told Reuters last week that the central bank has surveyed some foreign banks about the interest rates they offer to their clients for US dollar deposits.

The PBOC said last Friday it would continue to keep the yuan basically stable and guard against the risk of large exchange rate fluctuations.

Some currency traders also said the cuts in US dollar deposit rates would ease pressure on commercial lenders’ net interest margin, as banks’ US dollar deposit rates had risen above lending rates before the recent adjustments.

The latest PBOC data showed that the weighted-average interest rate on large US dollar deposits stood at 5.67 per cent in March, up 4.15 percentage points from a year earlier, while the weighted-average US dollar lending rate was up only 3.74 percentage points at 5.34 per cent. REUTERS