Chinese Banks Raise Dollar Deposit Rates Above US Benchmarks to Cool Yuan Rally

Several Chinese banks have sharply lifted dollar deposit rates in recent weeks, in some cases pushing them above comparable US benchmarks, according to sources cited by Reuters. The unusually swift moves are attracting cash from exporters, who are reportedly hoarding dollars rather than converting them into yuan, and bankers say the strategy could temper gains in China's currency.

The development is part of a broader Beijing effort to smooth an ongoing yuan rally. Earlier in November, the People's Bank of China announced it would raise the foreign exchange deposit reserve ratio for local institutions to 6% from 4%, effective November 15, one of its strongest direct moves to slow the currency's appreciation. The dollar deposit rate push adds another indirect tool to that campaign by encouraging companies to hold dollars and reduce conversion pressure on the yuan.

Sources say dollar deposit rates offered by some Chinese banks are now exceeding 4%, a level that makes holding dollar-denominated deposits more attractive for exporters sitting on large foreign currency earnings. Bankers described the moves as unusually rapid and said they are succeeding in drawing in cash, which if sustained could limit further yuan appreciation by reducing the volume of dollars being sold into the market.