Major state-owned banks cut interest rates to lead deposit rates into the "1 era"
On December 22, 2023, state-owned banks once again led the market by announcing a cut in deposit rates, the third adjustment since the beginning of the year. Specifically, the three-year fixed deposit listing rate has dropped to 1.95%, officially announcing the arrival of the so-called "1 era". This move not only affects the earnings expectations of ordinary savers, but also profoundly changes the way financial markets operate.
So why are there successive interest rate cuts? According to industry analysts, the main reason is the current operating pressure faced by commercial banks and their demand for steady growth. The core profitability of commercial banks – net interest margin – has been affected by the continued decline in the cost of entity financing. This pressure has forced banks to seek to balance the decline in asset-side yields by lowering deposit rates.
At a deeper level, this strategy is also aimed at stimulating credit creation and the development of the real economy. By lowering the interest rate on deposits, it can indirectly contribute to the reduction of the cost of borrowing for households and the business sector, thereby encouraging borrowing and investment activities.
Of course, such policy changes have also had a certain impact on the bond market. The first is that a window has opened for broad-based rate cuts, although there is uncertainty about whether further rate cuts will be made in the future. Second, after the attractiveness of deposits weakens, investors may turn their attention to other financial products such as bonds, increasing the market's demand for bond allocation.
In terms of investment options, investors are looking for new safe havens as the returns of traditional deposits and cash management wealth management products such as money market funds continue to decline. Short-term bond funds seek capital gains on coupons and leverage due to their professional research capabilities, and their performance has been quite outstanding so far this year. Looking ahead to 2024, short-end interest rate products are highly regarded for their cost-effectiveness and potential capital gains opportunities.
However, it is worth noting that risk management should not be neglected in the pursuit of high returns. Experts remind investors that they must carefully read the relevant legal documents before getting involved in financial products such as funds, and fully realize the principle that investment is risky and needs to be operated cautiously. In particular, the past performance of the fund does not guarantee that the future will be equally good, and individuals need to reasonably choose the fund products that are suitable for them according to their own risk tolerance level.
In short, in the current era of continuous decline in deposit rates and changing market environment under the guidance of large state-owned banks, depositors and investors should pay close attention to policy developments and make personal financial decisions prudently.