(Bloomberg) --
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China 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 US.
The People’s Bank of China 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 by half a percentage point, Pan said at a briefing on Wednesday.
Pan’s announcement came hours after China revealed it would hold its 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, Li Yunze.
“The US abuses of tariffs have severely disrupted global economic and trade orders,” said the CSRC’s Wu. “The production and operation of listed companies have inevitably been affected directly or indirectly.”
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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 relending tools and and loans for policy banks. The RRR cut will release about 1 trillion yuan ($139 billion) in long-term liquidity, Pan said.
The seven-day reverse repo cut will go into force on Thursday, with the RRR reduction in effect a week later, the PBOC said in separate statements.
As markets digested the news of the looming trade talks and China’s announcements, the offshore yuan erased gains to trade 0.1% weaker, while the 10-year government yield edged one basis point higher. Stocks also pared an early advance, with the Hang Seng China Enterprises Index up just 0.3% at the mid-day break after rising more than 2% earlier. The CSI 300 Index, a benchmark for onshore shares, was up just 0.5%.
“The market is now turning to see the progress in trade talks,” said Jason Chan, a senior investment strategist at Bank of East Asia. “Investors may be more cautious that both sides may not be able to make a deal in the near term and that’s why Chinese policymakers need to roll out so many easing measures prior to the meeting.”
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 say 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.
“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 central bank last reduced its policy rate and the reserve requirement ratio in September after Pan unveiled an array of aggressive measures to put a floor under China’s growth slowdown.
What Bloomberg Economics Says...
“The monetary package is stronger than we expected. It is a powerful signal that policymakers are committed to boosting sentiment and shoring up growth. The PBOC’s steps get the ball rolling. It’s important that the government follows up — fiscal measures are more central for stabilizing the economy, and we anticipate more measures to come.”
— David Qu, Eric Zhu and Chang Shu. For full analysis, click here
The loosening of monetary policy is the latest 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 US. 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 Tuesday from the Chinese and US governments.
“The current timing window appears to be quite suitable indeed,” said Lynn Song, chief Greater China economist at ING Bank. “Trade talks with the US were announced and the cuts avoid looking like bending to tariff pressure, and the yuan has been on a strengthening trajectory.”
Speaking at the same briefing on Wednesday, the NFRA’s Li pledged to introduce a series of financing policies soon to help stabilize the property market, ease regulations on insurers’ investment in stocks to support the stabilization and revitalization 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 set up financial asset investment arms to increase investment in technology firms, Li added.
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.
Without stronger stimulus, growth could begin to falter from the second quarter, putting China’s official goal of expanding around 5% this year at risk.
China’s top leaders pledged to “fully prepare” emergency plans to cope with rising external shocks in a Politburo meeting late April.
“Today’s announcement reflects an orchestrated effort to not only support liquidity, but to stimulate the broader market and economy,” said Frances Cheung, managing director and rates strategist at Oversea-Chinese Banking Corp Limited. “Having a more resilient economy would also be a card to play in the face of tariffs.”
--With assistance from Qizi Sun, April Ma, James Mayger, Winnie Hsu, Shulun Huang and Shikhar Balwani.
(Updates with strategist’s comment in eighth paragraph.)
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