China’s central bank is taking steps to stimulate the economy by cutting key policy rates in a bid to boost growth amid growing economic uncertainty and trade woes.

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The People's Bank of China (PBOC) said that it would lower the borrowing cost of its seven-day reverse repurchase rates by 10 basis points to 1.40 per cent from 1.50 per cent, according to an online statement, taking effect from May 08.

The seven-day reverse repo rate now serves as the economy's main policy rate. A reduction in the borrowing cost could lead to similar cuts to other market rates and interest rates on other liquidity tools. The PBOC previously lowered the seven-day reverse repo rate by 20 basis points (bps) in September 2024.

The central bank will also lower the reserve requirement ratio (RRR), which determines the amount of cash banks must hold in reserves, by 50 basis points, which will give additional liquidity of 1000 billion yuan ($138.6 billion) to the market.

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PBOC Governor Pan Gongsheng reiterated that officials will implement a “moderately loose” monetary policy, which will translate into ample liquidity and ensure funding with relatively low financing costs. The RRR cut can enhance the stability of bank liabilities, he said.

This move is notable as China has focused more on stabilising its currency and managing bond market risks, rather than stimulating growth. But with the economy under pressure from trade tensions and internal demand softness, priorities are shifting.

U.S.-China trade talk

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The timing is significant as China’s Vice Premier He Lifeng is scheduled to meet U.S. Treasury Secretary Scott Bessent later this week in Switzerland—the first confirmed trade talks between the countries since President Donald Trump announced sweeping tariffs, led by punishing levies on China.

Bessent, in an interview on Fox News, said the talks will centre on de-escalation rather than a big trade deal. And President Trump also recently said that he is willing to lower tariffs on China at some point, but also said this week that the U.S. is “losing nothing” by not trading with Beijing.

After the talks were announced, China’s Ministry of Commerce said in a statement that the U.S. should “show sincerity” in the upcoming talks, correct wrong practices and resolve the concerns of both sides through “equal consultation”.

The two nations have locked horns ever since Trump ratcheted up tariffs on Chinese goods to 145 per cent, prompting Beijing to retaliate with additional levies of 125 per cent on imports from the U.S.

 

Other key announcements

In a broader push to stabilise growth, China has also announced measures to support several key sectors, including technology and real estate, along with establishing a 500-billion-yuan (almost $692 million) relending tool for services consumption and elderly care. It has been announced that the quota for technology relending loans will increase to 800 billion yuan (approximately $1.1 billion) to support equipment upgrading, a consumer goods trade-in programme.

The country’s central bank plans to cut the mortgage rates under China’s housing provident fund, a government-backed housing lender, by 25 basis points, and the rates on five-year loans for first-time homebuyers will be trimmed to 2.6 per cent from 2.85 per cent. PBOC will also gradually lower the amount of cash that auto financial companies and leasing firms must hold in reserves to zero from the current 5 per cent.

PBOC expanded the allowance for the relending tool for agriculture and small and medium-sized enterprises by 300 billion yuan (around $415 million), along with combining two stock market support tools with a total quota of 800 billion yuan (about $1.1 billion).

A debt risk-sharing tool will also be created, allowing the PBOC to provide low-cost relending funds to encourage purchases of bonds of technology firms.

China is preparing more measures to support small and medium enterprises and the private sector, which will be announced soon, Li Yunze, the head of the financial regulatory administration, said at the briefing.

The broad stimulus announcement showed the officials were acting with greater urgency to bolster the economy. Beijing had largely opted for piecemeal stimulus measures this year, while hinting that it had sufficient policy firepower to use “when appropriate”.

(With inputs from agencies)