China recommends SMEs to reduce deposit interest rates

China’s interest rate regulators are recommending small and medium-sized banks to lower their deposit interest rate cap by 10 basis points (bp), according to sources. Aim to support the economy by reducing funding costs.

The upper limit is from the current base interest rate plus 75 bp to the base interest rate plus 65 bp.

With guidance based on a self-adjusting mechanism of interest rates supervised by the People’s Bank of China (Central Bank), Zaishin first reported.

Regulators haven’t clarified when the cut will take place, but one source said it aims to encourage a cut in the most preferential lending rate (loan prime rate), which is an indicator of lending rates.

If the upper limit of the deposit interest rate is lowered, the profit margin of the bank will improve and the lending interest rate will be lowered.

It is not obligatory to reduce the cap, but banks that respond to the reduction will receive bonus points in the quarterly macroprudential evaluation conducted by the People’s Bank of China (Central Bank).

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