A senior executive at Moody’s (MCO.NYSE) said negative interest rates may reduce the scope for Chinese banks to increase deposits and could leave it vulnerable to shocks from the global economic downturn, Bloomberg reported. Thomas Byrne, a senior vice president at the ratings agency, said: “It’s important to eliminate negative interest rates as it runs the risk of undermining the deposit bases banks use to fund themselves.” He added that such “dependable” funding from depositors “can reduce lots of vulnerabilities” in the banking sector. While interest rates in China have been increasing, bank deposit rates set by China’s regulators have been outstripped by inflation for 20 months, pushing savings elsewhere in the financial system. The one-year savings rate stood at 3.5% in September, while consumer price inflation was 6.1% – meaning that, if those rates were to persist for one year, those who saved in Chinese banks would effectively lose 2.6% of the value of their deposit.
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