Beijing: China has reduced its policy rate and lowered the amount of cash lenders must keep in reserve, as Beijing ramps up efforts to help an economy caught in a second trade war with the United States.
The People’s Bank of China (PBoC) cut the seven-day reverse repurchase rate to 1.4% from 1.5%, according to governor Pan Gongsheng.
The central bank will also trim the reserve requirement ratio (RRR) by half a percentage point, Pan said at a briefing yesterday.
The seven-day reverse repo cut will take effect today, the PBoC said in a separate statement.
Pan’s announcement came hours after China revealed it would hold the first trade talks this weekend with US officials since Donald Trump unleashed a 145% tariff on most Chinese goods.
The governor spoke alongside China Securities Regulatory Commission chairman Wu Qing and the head of the National Financial Regulatory Administration ( RA), Li Yunze.
The latest steps aim to guide borrowing costs lower and are among the 10 measures outlined by Pan, which also include rate reductions on a slew of re-lending tools and loans for policy banks.
The RRR cut will release about one trillion yuan or about US$138.1bil in long-term liquidity, Pan said.
The offshore yuan erased gains to trade 0.1% weaker yesterday, while the 10-year government yield edged one basis point higher.
The CSI 300 Index pared its 1.5% move higher at the open to just 0.5%.
“This isn’t just easing – it’s Beijing laying the groundwork for resilience, reform, and retaliation if needed,” said Charu Chanana, chief investment strategist for Saxo Markets in Singapore.
“This isn’t just a boost for liquidity and credit – the focus on tech, consumption, and elderly care signals a broader push to support structural drivers of the economy.”
The decisions demonstrate policymakers are acting with urgency to support the world’s second-largest economy in the face of the US-China trade war.
Expectations that Beijing would deploy more stimulus have risen after Trump brought US tariffs to a level economists said would decimate bilateral trade.
Pan reiterated that officials will implement a “moderately loose” monetary policy, which will translate into ample liquidity and ensure funding with relatively low financing cost.
The RRR cut can enhance the stability of bank liabilities, he said. Bloomberg Economics said: “The People’s Bank of China is spearheading efforts to shield the economy from the trade-war shock with a rate cut and other monetary support.
“The move echoes a strategy used last September, when the PBoC took the lead in delivering stimulus and fiscal support followed. It’s a sensible approach – monetary easing can feed quickly into the economy, increasing liquidity and lowering funding costs.”
The central bank last reduced its policy rate and the RRR ratio in September after Pan unveiled an array of aggressive measures to put a floor under China’s growth slowdown.
The loosening of monetary policy is a sign of Beijing’s growing commitment to bolstering consumption.
China has pledged to shift to domestic demand to maintain growth, as Trump’s tariffs threaten to cripple trade with the United States.
Exports could well contract this year, after contributing to 40% of economic growth in the first quarter.
US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel later this week to Switzerland for trade talks with China led by Vice-Premier He Lifeng.
The plan was announced in statements on Tuesday from the Chinese and US governments.
Speaking at the same briefing yesterday, the RA’s Li pledged to introduce a series of financing policies soon to help stabilise the property market, ease regulations on insurers’ investment in stocks to support the stabilisation and revitalisation of the capital market.
He also laid out a plan to launch a package of measures to boost funding for small and private companies.
More banks will be allowed to set up financial asset investment arms to increase investment in technology firms, Li added.
“The current timing window appears to be quite suitable indeed,” said Lynn Song, chief Greater China economist at ING Bank.
“Trade talks with the United States were announced and the cuts avoid looking like bending to tariff pressure, and the yuan has been on a strengthening trajectory.”
The steps taken by the PBoC mark a shift of direction after its priorities in recent months focused on defending the yuan and curbing speculation in the bond market instead of monetary loosening. — Bloomberg
