"Yesterday it was 2.65%, today it fell to 2.3%" - explain why the deposit rate has fallen again
Jimu News reporter Liu Shan
A new round of interest rate cuts has begun. As of December 22, the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the Construction Bank, the Bank of Communications and other large state-owned banks announced that they will reduce the listed interest rate of deposits from now on, with the deposit period covering one year to five years, with a reduction ranging from 0.1 to 0.25 percentage points.
Wuhan citizens are glad to have completed their deposits before the reduction
This morning, Ms. Zeng, a citizen of Wuhan, felt a little fortunate to hear the news that the interest rate on deposits of major state-owned banks had been lowered. On August 31 this year, Ms. Zeng deposited a fixed deposit at a branch of the Bank of Communications, and since there was no quota for large-value certificates of deposit at that time, the bank staff advised her to wait until the end of the year to buy large-value certificates of deposit. However, Ms. Zeng was worried that interest rates would continue to fall, so she did not wait and chose to deposit and withdraw the whole deposit, and the interest rate on the three-year deposit at that time was 2.9%. Unexpectedly, the day after the deposit, I entered September, and I heard that the deposit rate had been lowered.
Today, Ms. Zeng opened the bank app and saw that the maximum enforceable annual interest rate for 3-year lump sum deposits and withdrawals was only 2.4%, and even the 5-year deposit interest rate was inverted to 2%. "Fortunately, I decided to deposit on the spot at that time, otherwise I would have lost a lot of interest if I lowered it twice!" Ms. Zeng was happy about her choice.
It is reported that the adjustment includes a 10 basis point reduction in the interest rate for three-month, half-year and one-year fixed deposits, 20 basis points for the two-year term, 25 basis points for the three-year and five-year periods, in addition, the interest rate for call deposits will be reduced by 20 basis points, and the interest rate for large deposits will be reduced by up to 30 basis points. This is the third reduction in deposit rates since 2023, and around June and September this year, major state-owned banks have cut deposit interest rates twice.
"Today it has begun to be lowered, the three-year deposit rate was 2.65% yesterday, and today it has fallen to 2.3%. The president of a Wuhan branch of a state-owned bank told Jimu News that she believes that the reduction of the listed interest rate on deposits is conducive to stimulating consumption, and deposits may also turn to insurance and other fields. The person in charge of a Wuhan branch of another state-owned bank also said that it has received an internal downward adjustment, and it has been lowered twice this year.
Whether consumption can be stimulated depends on residents' expectations
Why is the deposit rate lowered again, will it stimulate household consumption, and what impact will it bring?
Pan Helin, co-director and researcher of the Digital Economy and Financial Innovation Research Center of Zhejiang University International Business School, believes that simply put, there are two purposes for lowering the deposit listing rate, one is to squeeze out deposits, let deposits flow to the stock market and consumer market, and reduce the savings rate by lowering interest rates, and the other is to reduce the cost of the banking industry, so that banks can obtain cheaper funds on the deposit side, so that they can be transmitted to the financing side, reduce the financing cost of enterprises, and stimulate credit.
The reporter noted that in the third quarter of 2023 China's monetary policy implementation report, the central bank said that it will continue to play the role of the loan market prime rate (LPR) reform and the market-oriented adjustment mechanism of deposit interest rates, promote the reduction of corporate loan interest rates, and stabilize the cost of bank liabilities. Pan and Lin pointed out that the reduction of the deposit interest rate is precisely the central bank's use of the currency deposit interest rate tool to regulate liquidity, optimize the deposit term structure, and explore a more market-oriented interest rate formation mechanism.
Wang Wei, deputy director of the Securities Research Institute of Wuhan University of Science and Technology, has foreseen the reduction of deposit interest rates. He told the Jimu News reporter that the main source of profit for banks is still the spread between deposits and loans, and since the beginning of this year, the comprehensive financing cost of the society has declined, and the bank has also lowered the interest rate on the first home loan, and the bank has made a great contribution to the reduction of fees and profits for small and medium-sized enterprises. On the whole, banks' income on the asset side is decreasing, and liabilities are increasing. Deposit rates have been lowered twice this year, and the current capital market has yet to recover, and the investment channel has not fully attracted more investors. As a result, there is a trend towards deposits, with more residents turning short-term funds into long-term deposits, leading to an increase in bank liabilities.
According to data from the State Administration of Financial Regulation, the net interest margin of commercial banks in the first three quarters was 1.73%, down 0.01 percentage points from the previous quarter, hitting a record low. "The continuous compression of interest rate spreads has put pressure on banks, and the reduction of deposit interest rates is conducive to reducing operating pressure, and will also bring a certain stimulating effect to residents' consumption, but the specific effect depends on residents' income expectations and entrepreneurs' expectations for the future, and we need to enhance everyone's confidence. Wang Wei said.
Ye Qing, a professor at Zhongnan University of Economics and Law, said in an interview with a reporter from Jimu News that the reduction of interest rates can reduce the cost of banks and increase profits, and some banks have also incurred losses in their operations; second, the measures of macroeconomic regulation and control make everyone feel that deposits are not cost-effective and are conducive to stimulating consumption; third, it will also cause a drop in loan interest rates in the future, which will be conducive to enterprise loans and reduce financing costs.
Pan and Lin also said that after the deposit interest rate is lowered, on the deposit side, deposits will flow out of the savings side and flow to other areas, and on the financing side, the financing cost will be reduced. However, he believes that there is not much room for subsequent downward adjustments, but it may continue to decline, because at this stage, the situation of funds circulating in the financial system still objectively exists, and bank funds need to be "moved" in the future.
(Source: Jimu News)