USD Deposits Enter Rate Cut Cycle, 5% Interest Peaks Vanish
"The future interest rates on US dollar deposits will continue to be adjusted downwards," said several commercial banks to the First Financial Daily reporter.
On September 19th, Beijing time, the Federal Reserve decided to lower the target range of the federal funds rate to 4.75% to 5%, equivalent to a reduction of 50 basis points in the interest rate spread.
This is the first interest rate cut since 2020.
After the interest rate cut took effect, the reporter learned from several commercial banks that the interest rates on US dollar deposits will continue to be adjusted downwards.
In fact, before the interest rate cut took effect, several commercial banks had already "rushed" to lower the interest rates on US dollar deposits.
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Looking at the current market situation of US dollar deposit interest rates, the past rates above 5% have gradually disappeared, and the interest rates on US dollar deposits have also entered a downward channel.
Industry insiders pointed out that with the shift in the Federal Reserve's monetary policy, it is expected that the interest rates on US dollar deposits will show a downward trend in the future.
Although the interest rates on US dollar deposits may still be relatively high in the short term and have a certain attractiveness, investors need to closely monitor exchange rate changes when considering US dollar deposits to avoid offsetting deposit interest income due to exchange rate fluctuations.
In particular, the Federal Reserve's expectations for interest rate cuts may have an impact on the actual returns of US dollar deposits.
The high interest rate ground is gradually disappearing.
The reporter learned from several branches of Shanghai's joint-stock banks that banks have recently intensively adjusted the interest rates on US dollar deposits.
A joint-stock bank financial manager told the reporter that the bank has adjusted its interest rates on US dollar time deposits, and the interest rates for 3-month, 6-month, and 1-year US dollar fixed deposits have decreased by about 10 basis points compared to last month.
City commercial banks and foreign banks have always been high interest rate grounds for US dollar deposits, and this time they also joined the interest rate cut team in advance.
A person from a city commercial bank told the reporter that the bank has carried out a wave of interest rate cuts for US dollar deposits in August, with a minimum deposit amount of 10,000 US dollars, a 1-month term interest rate from 5.05% to 4.95%, a 3-month term interest rate from 4.95% to 4.85%, a 6-month term also decreased by 10 basis points to 4.70%, and the one-year term has been reduced to about 4.5%, a decrease of about 40 basis points compared to July, "This time the Federal Reserve unexpectedly cut interest rates by 50 basis points, and the interest rates on US dollar deposits will continue to follow the adjustment downwards."
The reporter found that the interest rates on US dollar time deposits have decreased significantly compared to before.
The bank's US dollar deposit products have a 6-month and 1-year term deposit interest rate of 4.4%, a 3-month US dollar time deposit interest rate of 4.3%, and a 1-month US dollar time deposit interest rate of 4.1%, while in the second quarter of this year, the highest interest rate for the bank's customers depositing US dollars could reach above 5%.
Several state-owned banks have previously lowered the interest rates on US dollar time deposits.
For example, a state-owned bank's US dollar time deposit starts at 5,000 US dollars, with a maximum lock-up period of 1 year, and the interest rate can be raised to a maximum of 2.8%.
Wang Qing, the chief macro analyst of Orient Gold Honesty, pointed out that the recent decline in domestic US dollar deposit interest rates is mainly due to the slowdown of US inflation and increased pressure on the job market, and the Federal Reserve implemented an interest rate cut in September.
Historical data show that domestic US dollar deposit interest rates are usually adjusted in sync with the Federal Reserve's benchmark interest rates, and the adjustment range in recent years has also tended to be consistent.
In the view of some industry insiders, reducing the cost of interest payments is also an important factor for commercial banks to lower the interest rates on US dollar deposits.
Yang Haiping, a researcher at the Securities and Futures Research Institute of Central University of Finance and Economics, pointed out that the reduction in US dollar deposit interest rates this time is mainly due to the Federal Reserve's statement on monetary policy, which has led the market to generally expect that the US dollar is about to enter an interest rate cut cycle.
"Under this expectation, commercial banks have taken preemptive measures and have already lowered the interest rates on US dollar deposits.
Doing so not only maintains the competitiveness of US dollar deposit products and prevents a large outflow of deposits, but also helps to reduce the cost of banks paying interest on US dollar deposits."
Yang Haiping said.
In the background of the general decline in asset returns this year, many investors have begun to pay attention to high-interest US dollar deposits as a way of asset allocation.
According to official data statistics, as of the end of July, China's foreign currency deposit balance reached 834.7 billion US dollars, a year-on-year increase of 1.6%.
This increase reflects a certain demand for US dollar deposits in the market.
After the Federal Reserve's interest rate cut took effect, it will undoubtedly affect the changes in US dollar time deposit interest rates.
Will the interest rates on US dollar deposits continue to decline further in the future?
Wang Qing pointed out that looking forward, the Federal Reserve will continue to maintain an interest rate cut trend, and the ultimate goal of this round of interest rate cuts may be to reduce interest rates to around 2.5%.
Li Peijia, the head of the Research Institute of the Bank of China, analyzed that given the current employment and inflation data, the possibility of the Federal Reserve implementing an interest rate cut in the near future is relatively large.
It is expected that in September and December, the Federal Reserve may carry out two interest rate cuts, with a total interest rate cut of about 50 to 100 basis points, and the interest rates on US dollar deposits may face further downward pressure in the future.
However, in the short term, the interest rates on US dollar deposits still have a certain attractiveness.
"From the perspective of US dollar allocation, one or two interest rate cuts will not change the relatively high level of US dollar interest rates.
From an investment perspective, the US dollar is still more attractive, and US dollar holders should not sell immediately because of this interest rate cut."
Financial personnel told the reporter.
Wang Qing analyzed that it is expected that the Federal Reserve may continue to implement a gradual interest rate cut strategy in 2025 to maintain the policy interest rate at a restrictive level.
This indicates that in the short term, domestic US dollar deposit interest rates may still remain at a relatively high level and still have a certain attractiveness to investors.
In addition, exchange rate changes are an important factor that cannot be ignored when investing in US dollar deposits.
Ni Jun, an analyst at GF Securities, pointed out that the depreciation of the renminbi relative to the US dollar in the past few years and the expansion of the interest rate difference between Chinese and US government bonds have promoted the activity of renminbi arbitrage transactions.
The Federal Reserve's continuous interest rate hike operations have led to an increase in the yield of fixed income products such as US bonds and US dollar deposits.
However, with the turn of US bond rates, this kind of arbitrage transaction may end, and the exchange rate and capital flow may also change accordingly.
Xue Hongyan, the deputy dean of the Star Chart Financial Research Institute, pointed out that with the continuous strengthening of the expectation of the Federal Reserve's interest rate cut, the market interest rate in the United States has shown a downward trend, and the US dollar has also depreciated slightly relative to the renminbi.
Therefore, Chinese investors may face the risk of exchange rate losses when purchasing US dollar deposits or US dollar financial products in the future.