China Cuts Key Rate, Reserve Ratio to Aid Economy Hit by Tariffs

Yahoo

07-05-2025

(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.'
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.