File Photo: Xinhua

Several Chinese state-owned banks will lower deposit interest rates for the yuan and the dollar, according to a report by Securities Times on Tuesday, citing sources from the banks.

The report states that the interest rate for yuan demand deposits will be reduced by 5 basis points, and the interest rate for certain time deposits will be lowered by 10 basis points.

In the case of dollar deposits, some banks will cap the interest rate for 1-year time deposits above $50,000 at below 4.3 percent, compared to the previous ceiling of 5 percent.

An unnamed bank analyst told the Global Times on Tuesday that the banks' decision to lower dollar interest rates could be seen as a self-regulatory measure to maintain stability in the dollar-yuan interest rate. This move may encourage Chinese firms, particularly exporters holding dollar receipts, to settle foreign exchange receipts in yuan.

In May, the China Foreign Exchange Committee (CFXC) pledged to firmly curb major fluctuations in the exchange rate and emphasized the aim of keeping the yuan's value relatively stable at a reasonable equilibrium level. The People's Bank of China (PBC) and the State Administration of Foreign Exchange will strengthen supervision over the forex market, guide expectations, and curb speculation, in light of significant fluctuations the yuan experienced against the US dollar.

Despite facing downward pressure, the yuan has recently fluctuated within a reasonable two-way range. The analyst expects the yuan to remain at a reasonable equilibrium level against the dollar, supported by the country's economic recovery and the attractiveness of yuan assets globally. The analyst added that the Chinese currency has shown increasing resilience in the face of previous depreciations, and external pressures on the yuan have eased, contributing to relatively stable market expectations.

This reduction in yuan deposit rates represents the second major change following the lead of some state-owned large banks and share-holding commercial banks, which lowered listed interest rates for yuan deposits in September last year. Urban commercial banks and agricultural commercial banks followed suit. The move is expected to alleviate the pressure on banks' net interest margins caused by rising deposits and further stimulate the economy.

Data from China's central bank indicates that as of the end of April, the proportion of fixed-term and other deposits in personal deposits increased to 71 percent, up nearly 3 percentage points from the end of 2022. The proportion of fixed and other deposits in corporate deposits rose to nearly 68 percent, up nearly 2 percentage points from the end of 2022.

However, the analyst noted that there is limited room for further decline in yuan interest rates as the overall economy continues to gradually and steadily recover.

China's economic recovery gained momentum in April, driven by strong consumption and growing industrial output. The industrial added value of major industrial enterprises in China rose by 5.6 percent in April, up from a 3.9 percent growth in March, with retail sales surging 18.4 percent during the month, compared to a 10.6 percent rise in March.