Chinese regulators have instructed the country’s banks to reduce the interest rates they offer on deposits from other financial institutions. This move aims to free up funds to stimulate the economy, according to Bloomberg News, which cited sources familiar with the situation.
The interest rate self-disciplinary mechanism, a supervisory body under the central bank, advised banks to align the interbank deposit rate with the 7-day reverse repo rate. Currently, this rate is set at 1.5% annually, as reported by Bloomberg News.
According to the report, some banks offered an annual interest rate of 1.8% or higher to attract savings from financial counterparties.
The central bank has not yet responded to a request for comments from Reuters. This initiative aims to help banks manage excessive deposit costs, allowing them to better support the real economy.
Last month, China’s major lenders reduced deposit interest rates for the second time this year. This decision was made to alleviate pressure on net interest margins (NIM), which is a crucial measure of profitability.
Banks have seen their net interest margins shrink to record lows. They are compelled to provide cheaper loans and reduce mortgage rates as part of the national stimulus package.
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