China central bank releases slate of support measures amid a deepening economic slump

BEIJING — China will cut the amount of cash banks need to have on hand, known as the reserve requirement ratio, or RRR, by 50 basis points, People’s Bank of China Gov. Pan Gongsheng said during a press conference on Tuesday.

Pan, who was speaking to reporters alongside two other financial regulator heads, did not indicate exactly when the central bank would ease the policy but said it would be in the near term. Depending on conditions, there may be another cut of 0.25 to 0.5 basis points by the end of the year, Pan added.

He also said the PBOC would cut the 7-day repo rate by 0.2 percentage points.

China’s 10-year government bond yield hit a record low of 2% after Pan’s opening remarks.

Later in the press conference, he also signaled that a 0.2-0.25% cut in the loan prime rate is possible, without specifying when or if he was referring to the one-year or five-year LPR. Last Friday, the PBOC kept its main benchmark lending rates unchanged at the monthly fixing.

Pan added that the official policy announcements would be published on the central bank’s website, but did not specify when.

The rare high-level press conference was scheduled after the U.S. Federal Reserve cut interest rates last week. That kicked off an easing cycle that gave China’s central bank further room to cut its rates and boost growth in the face of deflationary pressure.

Pan became PBOC governor in July 2023. During his first press conference as central bank governor in January, Pan said the PBOC would cut the reserve requirement ratio, or RRR. Such policy announcements are rarely made during such events, and are typically disseminated through online releases and state media.

He then told reporters in March, alongside China’s annual parliamentary meeting, there was room to cut the RRR further. Such a reduction is widely expected in coming months.

Unlike the Fed’s focus on a main interest rate, the PBOC uses a variety of rates to manage monetary policy. The PBOC on Friday did not change its loan prime rate, a benchmark that affects corporate and household loans, including mortgages.

China’s government system also means that policy is set at a far higher level than that of the financial regulators speaking Tuesday. Such top-level meetings in July called for efforts to reach full-year growth targets and to boost domestic demand.

While the PBOC kept the loan prime rate unchanged in the days since the Fed’s cut, it has moved to lower a short-term rate, which determines the supply of money. The PBOC on Monday lowered the 14-day reverse repo rate by 10 basis points to 1.85%, but did not reduce the 7-day reverse repo rate, which was cut in July to 1.7%. Pan has indicated he would like the 7-day rate to become the main policy rate.

China’s economic growth has slowed, dragged down by the real estate slump and low consumer confidence. Economists have called for more stimulus, especially on the fiscal front.

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