Exclusive | Over 10 Trillion Yuan in Interbank Deposits May Face Rate Cut Wave, Industry Insiders Say Upgraded Self-Regulatory Management Measures to Be Introduced

Cailian Press, March 11 (Editor: Li Xiang) Over 10 trillion yuan in interbank deposits may see interest rate reductions.

Cailian Press has learned from multiple bank insiders that the self-regulation management of interbank deposit rates has recently been upgraded. The market interest rate pricing self-regulation mechanism has held meetings with some bank members, requiring strengthened self-discipline. The proportion of current interbank deposits exceeding the policy rate of 1.4% for 7-day reverse repos (OMO) at the end of the quarter should not exceed 10%-20%.

This has caused a ripple effect. Industry insiders are discussing the matter, expecting that banks will gradually lower their interbank current deposit rates. Some brokerage reports estimate that the scale of interbank current deposits above the OMO rate may have reached 16 trillion yuan, accounting for as much as 83% of all interbank current deposits. Some small and medium-sized banks’ non-bank interbank deposit quotes are even higher, leaving significant room for reduction.

This upgrade in self-regulation management is an expansion and strengthening of the self-regulation framework for the end of 2024. At that time, Cailian Press exclusively reported that in November 2024, the market interest rate pricing self-regulation mechanism issued the “Proposal on Optimizing the Self-Regulation Management of Non-bank Interbank Deposit Rates” (Self-Regulation Version 1.0), which for the first time included non-bank interbank current deposits into the self-regulation framework. It clarified that the reference rate for financial infrastructure institutions’ current deposits is set at an excess reserve rate of 0.35%, while other non-bank current deposits reference the 7-day OMO reverse repo rate of 1.4%. It also regulated the pricing behavior for early withdrawal of non-bank interbank fixed deposits.

It remains uncertain whether this self-regulation update is related to regulatory authorities’ requirements.

On March 6, PBOC Governor Pan Gongsheng clearly stated at the Fourth Session of the 14th National People’s Congress that “strengthening the implementation and supervision of interest rate policies, and regulating some unreasonable market behaviors that may weaken monetary policy transmission.” This statement drew widespread market attention. Many industry insiders see it as an indication that regulators will continue to promote the optimization and improvement of the interbank deposit rate self-regulation mechanism, facilitating policy rate transmission.

Self-Regulation Upgrade and Expansion, Over 10 Trillion Yuan in Interbank Deposits to See Rate Cuts Soon

As one of the three major sources of bank liabilities, interbank deposits are also crucial. The “Q4 2025 China Monetary Policy Implementation Report” released by the PBOC shows that by the end of 2025, deposits from non-bank financial institutions will reach 34.6 trillion yuan, a year-on-year increase of 22.8%, adding 6.41 trillion yuan throughout the year, reaching a new high since 2015.

With the trend of deposit disintermediation and residents’ wealth shifting toward asset management products, banks’ reliance on interbank liabilities continues to grow. Industry insiders say some banks offer high interest rates to attract more interbank deposits, leading to chaotic and unregulated market pricing.

The self-regulation version 1.0, issued at the end of 2024 and officially implemented in 2025, requires non-bank interbank deposits to be included in self-regulation management. Since its implementation, it has shown good results, significantly reducing liability costs. However, insiders note that bank interbank current deposits are not yet fully regulated, with many deposits exceeding the 1.4% policy rate. A related report from Kaiyuan Securities estimates that the scale of interbank current deposits above the OMO rate may have reached 16 trillion yuan, accounting for 83% of all interbank current deposits.

Several bank insiders told Cailian Press that the market interest rate self-regulation mechanism recently convened meetings with some members, requiring enhanced management of interbank deposit pricing. The core is that the proportion of interbank current deposits exceeding the 1.4% policy rate of 7-day reverse repos at the end of each quarter should not exceed 10%, which will be included in performance assessments. Additionally, the scope of self-regulation has expanded from non-bank interbank deposits to include bank interbank deposits.

An analyst from a bank said that in practice, “the ‘not exceeding 10%’ requirement may not be uniformly applied,” as it depends on each bank’s actual situation—some banks may have higher proportions, others lower.

Market expectations for the optimization and upgrade of the self-regulation mechanism seem relatively consistent, with assessments being an important management tool.

Open Source Securities analyst Liu Chengxiang stated in a related research report that the self-regulation 2.0 rules are likely to include “pricing behavior” assessments within the Qualified Prudential Evaluation (EPA), and the results will be directly linked to the Macro Prudential Assessment (MPA). The MPA framework could be referenced, applying a tiered penalty system quarterly for institutions exceeding the scale ratio, forming a normalized management constraint.

Some industry insiders believe that fully including interbank fixed deposits into the interest rate self-regulation system could be one of the directions for further optimization.

Regarding the pricing anchor for interbank fixed deposits, two hypotheses have emerged:

• Industrial Research team believes the pricing will likely reference the 7-day reverse repo rate plus a spread, or benchmark against the same-term interbank certificate of deposit (NCD) rate.
• China Everbright Securities suggests the anchor could reference the MLF (Medium-term Lending Facility) bid rate, which has policy attributes, or a market-based same-term deposit index rate, ensuring linkage with policy and market rates to strengthen monetary policy transmission.

Experts say that the goal of upgrading self-regulation is to further improve the fixed-term pricing structure of interbank deposits, smooth the funding rate curve, and connect policy rates with all maturities of interbank liabilities.

How Much Can Liability Costs Be Reduced? Which Institutions and Products Will Be Most Affected?

Self-regulation can clearly reduce liability costs, as seen from the self-regulation 1.0 version.

According to data from Industrial Research, by the mid-2025 reporting period, the implementation of self-regulation 1.0 has led to a decrease of 30-40 basis points in the liability costs of listed national banks, with total liability costs dropping by 3-4 basis points, becoming a key factor in stabilizing and rebounding the net interest margin of the banking system in 2025.

“Since the implementation of self-regulation 1.0, the overall liability cost reduction effect has been significant. However, in practice, because the pricing of interbank current deposits is calculated using a weighted average of settlement deposits (such as ChinaBond, Silver Center, etc.) and non-bank deposits (fund custody, third-party custody, etc.), some banks still offer non-bank deposit rates of 1.7%-1.8% or higher,” Liu Chengxiang, Chief Bank Analyst at Kaiyuan Securities, said. To better consolidate the cost reduction results, there is room for further fine-tuning of the self-regulation mechanism.

Meanwhile, Cailian Press notes that the self-regulation 1.0 version mainly regulated the early withdrawal pricing of interbank fixed deposits but did not set a unified self-regulation rate for issuance. Some institutions have adopted differentiated operations based on fixed and current rules.

“Some banks, through clauses allowing early withdrawal, have arranged flexible terms for interbank fixed deposits, which to some extent affects the transmission of liability cost reductions and has led to market expectations for further expansion of self-regulation coverage,” a market insider pointed out.

Market institutions have estimated the impact of rate cuts on interbank deposits.

According to a report from Industrial Research, if the cost of interbank fixed deposits drops by 40 basis points, it could reduce the total liability cost of banks by about 2 basis points. If all interbank deposits are priced based on the 7-day reverse repo rate, the maximum impact on bank liability costs could be around 5 basis points, helping to sustain the reduction in bank system liabilities.

Industry insiders say that continued regulation of interbank deposit pricing can better ensure smooth transmission of monetary policy, fully release the policy’s redemptive effects, and better serve the real economy. This is also a core focus highlighted by President Pan Gongsheng in “regulating market behaviors that weaken monetary policy transmission.”

After the rate reduction of interbank deposits, which institutions and products will be most affected?

Some market participants believe that banks with relatively high interbank deposit rates (possibly some large banks) will be more affected, which will further incentivize optimizing their liability structures and promoting stable operations.

For asset management, cash management financial products and money market funds will be more directly impacted. “If interbank current deposit rates fall by 20 basis points, money fund yields will decline by about 3 basis points, and cash management financial product yields will decrease by 2.56 basis points,” Liu Chengxiang said.

Several bank insiders told Cailian Press that the ongoing optimization of the interbank deposit self-regulation mechanism is an important step in China’s interest rate marketization reform. Stabilizing banks’ net interest margins and enhancing their ability to serve the real economy are fundamental reasons for further standardizing interbank deposit pricing. This will also improve the market-based interest rate formation and transmission mechanisms, making monetary policy transmission more smooth and efficient, and creating a more favorable financial environment for continuous reduction of financing costs for the real economy.

(Cailian Press, Li Xiang)