THE central bank has moved to curb interest rates on high-yield structured deposits, Reuters quoted three sources familiar with matter as saying Friday, as regulators seek to guide the country’s borrowing costs lower by reducing banks’ funding costs.

The People’s Bank of China (PBOC) recently told banks that they must not set guaranteed rates on structured deposits at more than 150 percent of the rates on term deposits of the same maturity, two bankers in Shanghai said.

The curbs on the 10 trillion yuan (US$1.46 trillion) business are nationwide, although the rules vary slightly by region, one of the sources said.

Banks have been aggressively marketing structured deposits — a hybrid that combines traditional deposits with higher-return investment products — to lure in more funds.

But the yields they promise hurt their profitability, making the banks reluctant to reduce lending rates, which the government wants them to do in order to boost the economy.

“The central bank is now aiming to curb the fundraising cost for banks, so that the corporate borrowing costs can be reduced, too,” a Shanghai-based banker who works for a foreign bank said.

The PBOC’s instruction followed China’s move late last year to strengthen management of structured deposits.

China’s one-year benchmark term deposit rate is 1.5 percent, while some structured deposits with the same maturity marketed returns as high as 4 percent.

The market is closely watching today’s monthly setting of China’s new loan benchmark rate.  (SD-Agencies)