Hong Kong media agencies forecasted a sharp dive in stock prices of major state-owned banks in the Chinese mainland today as the People's Bank of China (PBOC) trimmed the interest rates by a quarter of a percent this morning.

After the cut, the one-year deposit interest rate fell to 3.25 percent while the loan interest rate tumbled to 6.31 percent.

The central bank made the announcement hours after the close of the stock market yesterday, when the Shanghai Stock Exchange Composite Index fell over 13 points while the Shenzhen Composite Index tumbled almost 48 points.

At the same time, the central bank loosened its reigns on the floating band of the rates. The deposit interest rate can fluctuate as long as it is kept below 1.1 times the benchmark rate, while the commercial banks are entitled to offer a maximum 20 percent discount in lending, double the previous 10 percent limit.

According to the mainland financial news agency Caijing, in response to the rate cut, the maximum deposit interest rate would rise from 3.5 percent to 3.575 percent while the minimum lending rate would drop from 5.904 percent to 5.048 percent, narrowing the gap between deposit and lending rates to 0.93 percent.

Amid the fierce competition in attracting deposit customers, commercial banks in the Chinese mainland are likely to raise their deposit rates, said Liao Qun, a chief economist at China CITIC Bank.

However, the lending rate won't enjoy too much fluctuation because the majority of the targeted clients are state-owned enterprises which carry relatively low risk, Caijing reported. Based on this prediction, the lending rate would drop around 5 percent to 10 percent, while a possibility remained that many small and medium sized banks would raise rates.

According to Yan Meizhi, a senior researcher on the domestic banking market for Barclays, the policy will negatively affect mainland banks, where profits are predicted to suffer. Yet the concrete impact on the banks remains unclear, because it depends on their specific pricing strategies, Yan told Caijing.