Last month, Chinese families' deposits decreased 278.4 billion yuan, the central bank said Tuesday, breaking the record of monthly drop set just in April when household deposits went down 167.4 billion yuan.

Meanwhile, the renminbi deposit balance stood at 36.03 trillion yuan, a year-on-year increase of 14.63 percent, the lowest growth rate since April, 2002.

Analysts attribute the decline in deposits to the magnetic effect of the country's stock market which has soared more than 50 percent so far this year even after a major correction in the last two weeks caused by the stamp tax hike.

"The rapid decrease in deposits indicates citizens' enthusiasm in stock investment is still high," said Guo Tianyong of Central University of Finance and Economics. He expects a slowdown in the decrease in June due to the recent slumps in the stock market.

Shenyin Wanguo Securities analyst Li Huiyong cited two reasons for the drop in deposits. "The return from deposits is too low and the money continues to flow to stocks and funds, or other higher-yield instruments."

Increased consumption during the May Day holiday is also a factor, Li added.

The benchmark one-year deposits currently carry an interest rate of 3.06 percent, below May's inflation rate of 3.4 percent as measured by consumer price index (CPI), the highest in more than two years. That makes the real interest rate negative, raising the pressure for an interest rate hike.

Interest Rates Hikes

Interest rates increases are needed to keep bank deposit rates positive in real terms, said Zhou Wangjun, a deputy director in the price department of the National Development Reform Commission.

The possibility for an interest rates hike is increasing, said Li Huiyong of Shenyin Wanguo, citing the high-flying CPI in the last few months. CPI rose 3.3 percent in March before falling to three percent in April, equal to central bank's target for this year.

Last week, central bank governor Zhou Xiaochuan said he was "closely" monitoring the rising food costs and will study May's CPI data before any interest-rate change.

The central bank has raised interest rates twice this year, with the latest coming on May 19.

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