China Slashes Rates, Injects $138.5B to Shield Economy From Trade War Impact
Economics
Jamie Redman
Easy Money: China Slashes Rates, Injects $138.5B to Shield Economy From Trade War Impact
China’s central bank slashed key interest rates and injected $138.5 billion into its financial system to bolster an economy battered by U.S. trade tensions and domestic challenges.
Easy Money: China Slashes Rates, Injects $138.5B to Shield Economy From Trade War Impact
PBOC Unveils Sweeping Rate Cuts
Reuters reported that the People’s Bank of China (PBOC) cut its seven-day reverse repurchase rate by 10 basis points to 1.4%, effective May 8, while lowering the reserve requirement ratio (RRR) by 50 basis points to release 1 trillion yuan ($138.5 billion) in liquidity. These steps aim to ease credit conditions and stimulate growth amid a property sector slump and weakening consumer demand.
CNBC disclosed that mortgage rates for first-time homebuyers under the Housing Provident Fund dropped 25 basis points, with five-year loans now at 2.6%. Auto financing reserves will phase down to 0% from 5%, and a 500-billion-yuan re-lending tool was launched to spur consumption and elderly care investments. The PBOC also pledged low-cost funding for tech bonds and small businesses.
Ongoing U.S.-China trade disputes, including tariffs disrupting exports, and domestic issues like deflationary pressures and a real estate crisis prompted the measures. Factory activity contracted in April at its fastest pace since 2023, exacerbating concerns over job market stability and economic growth.
Chinese stocks rose following the announcements, though analysts cautioned that demand-side constraints could limit the measures’ impact. Risks include potential inflation, yuan depreciation, and asset bubbles. Capital Economics noted fiscal support would be more effective than monetary easing alone.
Reuters journalists Kevin Yao and Joe Cash explained that Citi analysts emphasized PBOC Governor Pan Gongsheng’s “timely domestic support” ahead of U.S.-China trade talks in Switzerland. Analysts predict further PBOC rate cuts in 2025 especially if the U.S. Federal Reserve eases policy. The measures signal Beijing’s commitment to stabilizing its economy despite protracted global uncertainties.
This development arrives just as the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) gathers on Wednesday for its latest meeting. A 2 p.m. Eastern time, the Fed chose to maintain the federal funds rate at its current position. “In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent,” the FOMC stated.
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