Banks Cut Yuan Deposit Rates, Could Boost Consumption

China's biggest banks on Thursday said they have lowered interest rates on yuan deposits, in actions that could ease pressure on profit margins and reduce lending costs, providing some relief for the financial sector and wider economy.

Industrial and Commercial Bank of China Ltd, Agricultural Bank of China Ltd, Bank of China Ltd and China Construction Bank Corp all cut their rates from Thursday, websites from each bank showed.

The state-backed banks cut rates on demand deposits by 5 basis points and three-year and five-year time deposits by 15 basis points.

This is the second such cut within a year, with previous action taken in September.

"The deposit rate cuts will push savings into consumption and investment and ease the pressure on banks' net interest margins (NIM), opening the door for further monetary stimulus," said Gary Ng, Asia Pacific senior economist of Natixis.

He expects a 50 basis points cut in the reserve requirement ratio (RRR) soon to support local government bond issuance. But additional loan prime rate cuts will only come if economic data or financial risks deteriorate to a level that prevents China from meeting its 5 percent target, said Ng.

China cut the RRR in March but has kept its benchmark lending rate unchanged this year, as widening yield differentials with the United States limited the scope for substantial monetary easing. (Reuters)