The tide of interest rate cuts in US dollar fixed deposits is coming, which is positive for the RMB exchange rate

Dollar deposits, which had been soaring, were finally starting to cool.

"Just adjusted overnight yesterday, the current one-year fixed deposit rate is 2.8%, and the previous peak was about 5.3%, down nearly half." An account manager of a branch of a state-owned bank in Guangdong told reporters.

Savers Xiaoting (pseudonym), who has bought US dollar deposits many times this year, described this US dollar deposit rate cut as a "cliff". "In the past two days, the US dollar deposit products of basic state-owned banks have been lowered across the board, and not only are there no more than 5% of the products, but even more than 4.5% can not be found." Previously, interest rates on dollar deposits had been climbing steadily this year and had been at a high of more than 5% for a long time.

The market generally believes that the rate cut on US dollar deposits is expected. On the one hand, the central bank last month emphasized that it will study strengthening the self-regulation of US dollar deposits, which has laid the "foreshadowing" for this month's reduction. On the other hand, from the perspective of the domestic environment, this month's "start" is just one week, village and town banks and large state-owned banks have cut interest rates in turn, if the US dollar deposit rate is still "standing still" will further increase the interest rate differential between the two. At present, the first to reduce US dollar deposits is still the state-owned banks, some insiders believe that this reduction is similar to last year's rhythm, after which small and medium-sized banks may also join the US dollar deposit interest rate reduction army.

Dollar deposits cooled

On June 6, the reporter visited a number of banks and found that many banks have begun to reduce US dollar interest rates and interest calculation methods.

Taking Bank of China as an example, the customer manager of a branch of Bank of China in South China told reporters that the current actual interest rate of 5000,5 US dollars ~ 2,8 US dollars (not included) is 5.4%, and the interest rate above 3,<> US dollars is <>.<>%, and can only come to the counter to apply. The account manager showed the reporter the old version of the poster, she explained: "Since the current interest rate has just fallen, the current poster will have time to be updated." ”

A branch of Bank of Communications in Dongguan is in a similar situation, and the current maximum interest rate of more than 5,4 yuan is also 3.5000%. According to the bank's staff, the current 5,1 US dollars ~ 2,2 US dollars (not included), the interest rate of 8-year and 5-year is 4.3%; Above $3,5, 5.20 per cent for one year and 5.2 per cent for two years. "This is already a reduced interest rate, and on May <>th we still have a maximum annual interest rate of <>.<>%."

During the visit, according to incomplete statistics from the first financial reporter, the maximum interest rate of US dollar deposits of many large banks such as Bank of Communications, Agricultural Bank of China, and Industrial and Commercial Bank is currently 4.3%. In mid-April, the maximum interest rate of US dollar deposits in the above-mentioned banks was basically above 4.4%, and the Industrial and Commercial Bank and Construction Bank were even as high as 6%, if calculated according to this, the decline has been close to 5BP.

From the above-mentioned account managers of state-owned banks, it was learned that it is difficult for the US dollar deposit interest rate to appear in the previous "all the way" grand situation. Because the interest calculation method has been notified to adjust. Previously, US dollar deposits were based on Libor measurement, which was highly volatile, and now it has changed to a model based on the listed interest rate combined with the plus point rise, which is relatively stable. On the official APP of the Bank of China, the first financial reporter saw that the highest interest rates for US dollar deposits for 1 month, 3 months, 6 months, 1 year and 2 years were displayed as 0.2%, 0.3%, 0.5%, 0.8% and 0.8% respectively. The bank's staff explained that the above display is actually the current central bank's listed interest rate, and each bank can increase the point on the basis of this interest rate, and the current increase range is 200BP~350BP. At present, the maximum interest rate of its branch cannot exceed 4.3%.

It is worth noting that when the large state-owned banks lowered the interest rate on US dollar deposits, many city commercial banks and joint-stock banks are still "standing still". Taking Xiamen International Bank, which previously had a higher US dollar deposit interest rate, as an example, the maximum interest rate of the bank's 4-year US dollar deposit in mid-April was 1.5%, and if it meets the capital threshold of 45,7000~5,1 US dollars, it can still enjoy an annualized interest rate of 5.45% for <> year of fixed deposit; The situation of Bank of Jiangsu, China Merchants Bank, Bohai Bank and China Guangfa Bank is similar, with no or only a small reduction.

It is worth noting that although the above-mentioned banks have not significantly reduced the US dollar deposit interest rate, they have shown an inverted trend in the deposit term and fund limit. Taking Xiamen International Bank as an example, from the perspective of deposit time limit, the same deposit is 7000,5 US dollars ~ 2,4 US dollars, the annualized interest rate of Xiamen International Bank is 55.1% for 5 years, and 45.90% for 1 year, a difference of 5BP; From the amount point of view, Xiamen International Bank has a situation that the more you buy, the lower the interest rate, the same 4-year fixed deposit, the interest rate of deposits above 75,7000 US dollars is 5.<>%, which is lower than the purchase of <>,<> US dollars ~ <>,<> US dollars. Some insiders believe that this is because banks still have great uncertainty about the future medium and long-term exchange rate, so they adopt a conservative posture on the scale and time limit of deposits.

Anticipate the risk of exchange rate fluctuations

US dollar deposits announced a comprehensive interest rate cut at this point, which is closely related to changes in domestic and foreign markets.

At the end of March, the Federal Open Market Committee announced that it would raise the target range of the federal funds rate by 1 basis points to between 3.25% and 4%, the highest level since October 75. Goldman Sachs said that the Fed is "very likely" to raise interest rates by 5 basis points in July, raising the terminal interest rate forecast to 2007.10%~7.25%.

Under the Fed's interest rate hike cycle, the interest rate of US dollar deposit products continued to rise, and according to PBOC data, the interest rate on one-year US dollar large deposits rose rapidly from 2022.1% in January 1 to 28.2023% in March 3; At the same time, the RMB deposit interest rate has been lowered several times in the past three months, and the interest rate differential between the two sides is gradually widening. Some insiders told reporters that some depositors holding RMB did "exchange foreign exchange on the car" before, trying to earn a spread of about 5 points in the middle.

Another manifestation of the widening interest rate spread is that the domestic exchange rate has been generally low and the selling exchange rate has been high since the beginning of the year. Wang Qing, chief macro analyst of Oriental Jincheng, believes that this means that the high trade surplus is more converted into domestic dollar deposits, rather than converted into RMB, which will also affect the balance of supply and demand in the foreign exchange market, making the RMB depreciate against the US dollar. In fact, the renminbi has indeed been caught in a vicious circle this year, with the onshore yuan breaking 2 against the dollar from 2.6 on February 72 to May 5. On June 17, the central exchange rate of the renminbi against the US dollar in the interbank foreign exchange market was 7.6 yuan, down 7 basis points from the previous value.

Regulators have taken a stand on this situation. On May 5, the central bank spoke out on US dollar deposits, saying that it would resolutely curb the sharp fluctuations of the exchange rate and study strengthening the self-regulation of US dollar deposits. The statement pointed out that the expectations of financial institutions, enterprises and residents for the exchange rate are generally stable, which is a solid foundation and strong guarantee for the smooth operation of the foreign exchange market. Regulators will work together to guide expectations and, if necessary, correct pro-cyclical and one-sided behavior to curb speculation.

What is the potential impact?

What impact will the current round of US dollar deposit rate reduction have on the market?

For banks, it will further reduce the pressure on their net interest margins. "Cut in US dollar deposit rates is expected to ease the cost of industry liabilities by 0.6bp." Dai Zhifeng, chief analyst of the banking industry of Zhongtai Securities, pointed out that assuming that the interest rate of time deposits over US$5,5 is lowered from 4% to 3.5%, and one-year US dollar deposits of more than US$30,0 account for 6% of the US dollar deposits of various banks, it is estimated that the cost of debt in the mitigated industry will be about 0.56bp, and the profit will increase by 0.61%. In terms of sectors, state-owned banks and joint-stock banks benefited relatively more. State-owned banks and joint-stock banks have a higher scale of US dollar deposits and the benefits are more obvious, with the cost of mitigating liabilities being 0.82bp and <>.<>bp respectively, while rural commercial banks generally have a smaller dollar deposit scale and the smallest benefit.

In addition to reducing the cost of banks, many foreign trade related people told reporters that this will also make the exchange rate gradually rise: the US dollar deposit interest rate is no longer "attractive" after foreign trade companies will use more RMB to settle foreign exchange income. In addition, coupled with other supporting factors, the exchange rate is expected to enter a relatively stable range. CICC pointed out in the research report that there are some supporting factors in the RMB exchange rate, such as the current trend of the US dollar index is not strong, China's current economic recovery momentum is good, the exchange rate is expected to be generally stable, etc., although the RMB exchange rate will face some pressure in the second quarter, but under the role of supporting factors, the depreciation pressure of the RMB exchange rate is generally controllable. When the exchange rate approaches the year's high, the demand for foreign exchange settlement increases, thus balancing supply and demand in the market.

From the perspective of the follow-up market, many institutions believe that there is still some room for the deposit rate to be reduced. Wang Yifeng, chief financial analyst of Everbright Securities, pointed out that the current long-end interest rate level of core deposits is significantly higher than the market interest rate, and the necessity of adjustment under the background of regular deposit has increased.

Dai Zhifeng also held a similar view, pointing out that although there are many types of cuts involved, the magnitude is relatively small, and there is still room for further decline in deposit interest rates from both regulatory and bank triggers. Under the superposition of multiple factors such as high growth in residents' excess savings, slow recovery in consumption, and pressure on bank interest rate spreads, on the one hand, the regulatory level has the motivation to continue to promote the decline of deposit interest rates to protect the reasonable interest rate spread range of banks, thereby increasing the motivation of banks to provide credit support to the real economy. On the other hand, in terms of banks themselves, the capital market and financial management are slowly picking up, residents' risk aversion is still at a high level, deposits continue to increase, and on the basis of less pressure on the debt side, they also have motivation to reduce deposit pricing to protect interest rate spreads.