The main banks in China reduced deposit rates, indicating possible future monetary easing

In an effort to stimulate development in an economy where consumer spending has been sluggish to rebound, China's top banks slashed interest rates for savers on Thursday.

CNBC investigations revealed new yuan-denominated demand deposit interest rates of 0.2%, down from 0.25% last year, on the websites of all six of the nation's state-owned commercial banks. Demand deposits let you withdraw money whenever you want.

According to their websites, the banks also reduced interest rates for other deposit products, bringing the rate for five-year time deposits down from 2.65% to 2.5%. The reductions in deposit rates were announced by the government-run Securities Times in its Thursday issue.

According to Nomura analysts, these reductions assist banks' profitability and pave the way for the People's Bank of China to lower other interest rates.

In contrast to the United States and other major nations, which have aggressively increased rates to combat inflation, China has maintained low-interest rates.

The effect on consumption

Business borrowing is more appealing when interest rates are lower. Cutting deposit rates increases the cost for customers to keep their money in the bank, which presumably encourages them to spend more.

According to a PBOC poll conducted in the first quarter, 58% of household depositors stated they would like to conserve money rather than spend it or invest it. It was at its lowest point in a year.

Lower deposit rates won't always result in more spending right away, though.

The reductions are "positive on the margin but unlikely to be a significant boost for household spending," Pinpoint Asset Management president and chief economist Zhiwei Zhang wrote in an email.

The lower unemployment rate is the most crucial problem. Households with more employment confidence will spend more, he claimed.

In April, the rate of youth unemployment surpassed 20%, setting a record high. On June 15, China will publish information on retail sales and unemployment for May.

(Sources: cnbc.com, stcn.com)