China’s Central Bank Policy Changes

BEIJING (Reuters) – China’s central bank announced plans to cut banks’ reserve requirement ratio and interest rates at a “proper time” during a quarterly meeting of its monetary policy committee held last week, according to a statement released on Friday.

The People’s Bank of China (PBOC) committee suggested enhancing monetary policy adjustments and adopting a more proactive, targeted, and effective approach, as discussed in the fourth quarter meeting held on December 27.

These remarks align with a recent Financial Times report, which indicated that the PBOC may reduce interest rates from the current level of 1.5% “at an appropriate time” in 2025.

Such statements reflect the policymakers’ commitment made last year to establish a more market-driven interest rate environment. Analysts expect further changes this year to ensure that credit demand more effectively responds to monetary policy measures.

The PBOC emphasized its intention to prioritize “the role of interest rate adjustments” while moving away from “quantitative objectives” for loan growth, as part of an interest rate reform program that government advisors have termed “an arduous task.”

The main rate for the economy is the seven-day reverse repo rate, which the PBOC most recently lowered from 1.7% to 1.5% in late September.

On Friday, China’s 10-year and 30-year treasury yields reached record lows on expectations of renewed monetary easing.

The central bank stated, “(The PBOC will) enrich and improve the monetary policy toolkit, conduct buying and selling of treasury bonds, and pay attention to changes in long-term yields.”

It further pledged to enhance the transmission mechanism of monetary policy and improve the efficiency of money utilization.

These comments were part of a broader strategy to stimulate growth in the world’s second-largest economy, which has suffered from a severe property crisis that has diminished consumer wealth and spending, with much of the government stimulus directed towards producers and infrastructure.

Last month, China’s decision-making Politburo adjusted the monetary policy stance from “prudent” to “appropriately loose,” marking the first shift since the “prudent” stance was adopted in 2010.

The PBOC’s commitments come as China prepares for increased trade tensions with the United States following Donald Trump’s return to the White House. The bank pledges to stabilize foreign exchange market expectations and maintain a reasonably stable yuan.

Government advisors are recommending that Beijing keep its growth target for this year unchanged at around 5%, while also calling for more aggressive fiscal stimulus to support depressed domestic demand.

($1 = 7.2994 Chinese yuan renminbi)