China’s top 4 government banks shrink interest on dollar

China’s top 4 state banks have cut interest rates on dollar deposits significantly, according to people familiar with the matter, after strong demand for U.S. currency in the banking system partly pushed the yuan to its lowest levels in 6 months.

The media said banks had recently lowered the interest rate cap, which represented a premium above the rate on guaranteed one-night dollar finance for both companies and individuals. One stated that some regional branches of banks now offer interest of approximately 5.7% on dollar deposits to their top customers, down from 6% previously.

The four banks did not immediately respond to requests for comment, including: the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and the Reconstruction Bank of China.

The yuan has fallen 3% against the dollar this year, as interest rate differentials between Washington and Beijing widen, with the Fed tightening its monetary policy on the one hand, versus keeping China on the other.

The People’s Bank of China, the foreign exchange regulator, pledged last month to combat currency speculation and consider ways to strengthen dollar deposit management. The total foreign currency held by China’s banking system was $881.9 billion at the end of April.