China’s central bank announced significant monetary policy adjustments aimed at revitalizing the country’s economy amidst ongoing trade concerns. The People’s Bank of China (PBoC) announced today that it will lower the seven-day reverse repurchase rate by 10 basis points. It reduces the overall rate from 1.5% to 1.4%. PBoC Governor Pan Gongsheng announced this decision at an unexpected press conference. It demonstrates the administration’s resolve to supercharge economic growth.
The announcement came as Pan Gongsheng addressed the media alongside officials from the National Financial Regulatory Administration and the China Securities Regulatory Commission. Their remarks only underscored how badly we need it. Economic pressures from the US led trade war have only exacerbated the situation.
This is why the new government has been pressing the central bank to start cutting rates. They announced their plans to reduce the reserve requirement ratio by 50bps. This measure is expected to pump at least 1,000 billion yuan (roughly $138.6 billion) into the market. It will pump significant liquidity into the market with earnest cash. The loan prime rate is currently the primary policy interest rate in China. In other words, it will fall by roughly 10 basis points.
The stage is set for increasing friction in U.S.-China trade relations. U.S. President Donald Trump has increased tariffs on Chinese goods to an all-time high of 145%. As a result, Beijing has retaliated with tariffs of 125% on American exports. This tit-for-tat strategy has unsettled international markets and impeded trade between the world’s two largest economies.
Traders are looking at the forthcoming negotiations as a make-or-break point in the drawn-out trade war. That result would lead to quite a change in the fiscal policy direction for either capital. This is true particularly in light of recent shifts in our monetary policy aimed at addressing domestic economic woes.