New interest rate initiative will not affect existing deposits, sources say

A new initiative by Chinese commercial banks to further align actual deposit rates with policy rates does not include deposits already placed in banks or deposits owned by individuals and households, authoritative sources said, clarifying misunderstandings about the initiative.

"All term deposits already placed in banks — whether with a term of three or five years — will maintain the interest rate agreed when the deposit was made," the sources close to the central bank said.

The remarks came after China's interest rate self-disciplinary mechanism — where banks collectively agree to set deposit rates within certain guidelines — released an initiative on Friday.

The initiative proposed that banks should include a new clause in deposit service agreements with corporate clients to ensure that any changes to bank's listed deposit rates or deposit rate caps are reflected in the actual deposit transactions in a timely manner.

The mentioned clause is aimed at eradicating the cases where banks' actual listed deposit rates have significantly declined from rates promised in the agreements but banks must offer new deposits at the rate set in the agreements, instead of changing existing deposits placed at banks, according to the sources.

The move will prevent certain large enterprises and institutions from using deposit service agreements to escape from interest rate policy adjustments, and deposits owned by individuals and households will not be affected, they added.