Seven sources with knowledge of the situation say China encouraged banks to slash deposit interest rates further this month in the latest move to divert the country’s enormous savings pool towards consumption and more productive investments.

Two participants and two other bank sources intimately briefed on the discussion said China’s “interest rate self-regulatory mechanism,” largely banks, convened this month and supported deposit rate reductions.

China’s central bank sets bank rates indirectly through the market-based process, which includes large and small banks. As a result, banks and the economy struggle under massive savings and deposit inflows.

Since December’s zero-COVID policy hike, activity in the world’s second-largest economy has picked up, but investors remain wary as corporations face debt problems, structural issues, and a weakening global economy.

“The message is that banks need to collectively bring down deposit rates,” a source said.

The financial system is receiving funds, but “what’s the point if people save every cent they get, instead of spending, or investing?” he stated.

Another source told Reuters that one of China’s “big four” state lenders will decrease personal and business rates next week. “Call deposits” and “agreement deposits” are impacted.

Other attendees claimed the mechanism requested a 10-basis-point decrease to weighted average term deposit rates in the quarter from a year earlier and advised banks to reduce high-yield deposit products.

They spoke anonymously because they weren’t authorized to discuss the situation.

Reuters’ request for comment went unanswered by the People’s Bank of China.

After bigger rivals did likewise last year, some small and mid-sized Chinese lenders dropped deposit interest rates this month. Cuts may follow the new advice.

As banks compete for accounts, deposit rates have followed the 60-basis-point drop in the benchmark one-year loan prime rate (LPR) to 3.65% since 2019. According to Rong360 Digital Technology Institute, the one-year CD rate has remained 2.26%.

That’s brought huge flows to the banking system when Beijing attempts to boost expenditure, squeezing bank profitability as loan demand remains low.

After a 17.8 trillion yuan rise last year, household savings rose 9.9 trillion yuan in the first quarter. In the fourth quarter of 2022, banks’ net interest margins fell to 1.91%, a record low.

Bankers said they were under pressure to drop returns and eliminate structured deposits, while analysts said new deposit supervision guidelines issued earlier this month had made oversight difficult.

“The market adjustment mechanism of deposit rates has turned ‘rigid’ from’soft’,” Golden Credit Rating International Co said.

With record low margins, “banks have no choice but to appropriately lower deposit rates as the government continues to push financing costs steadily lower to aid the real economy.”

Structured deposits, which combine regular deposits with higher-yielding investments to pay a better rate with withdrawal limits, climbed 558.5 billion yuan, or 12%, to 5.12 trillion in the first two months of this year.

“Faster growth in structured deposit business this year was common at many lenders, and the message from the regulator was clearly to reduce the size of such business,” a bank source said.