China banks raise dollar deposit rates to curb yuan appreciation

Several Chinese banks have recently increased their dollar deposit rates, a move that traders suggest is likely intended to moderate the pace of the yuan's appreciation. At least five commercial banks, including state-owned and smaller joint-stock lenders, have lifted the dollar deposit rates offered to clients. Some banks are now offering rates at or above the U.S. Secured Overnight Financing Rate (SOFR), which is currently 3.61%. The People's Bank of China (PBOC) has not immediately responded to requests for comment regarding informal guidance on these rate adjustments. The yuan has appreciated by more than 3% against the dollar year-to-date, and a stronger currency can impact export competitiveness. Foreign exchange deposits in China stood at $1.15 trillion at the end of April, up approximately 20% from the previous year. This adjustment marks a relaxation of a dollar deposit rate ceiling that was imposed in 2023 when the yuan was facing depreciation pressure. Gary Ng, senior economist for Asia Pacific at Natixis, noted that the rate adjustment reflects global increases in U.S. dollar funding costs and that significant differences in dollar deposit rates could lead to money flowing out of the banking sector.