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 will 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.

Lynn Song, chief economist for greater China ING, called the repo rate cut announcement “the most important” move made during the press conference.

“Markets had been leaning toward expecting multiple 10bp rate cuts, so a 20bp cut represents a slightly stronger than expected move,” he said in a note on Tuesday. “However, the net impact will depend on whether we see further cuts ahead or whether the PBOC falls into a wait-and-see mindset after today’s policy package.”

The RRR cut was more a move to boost sentiment, since the challenge is not banks lacking the funds to lend, but limited demand for borrowing, Song added.

Later in the press conference, Pan signaled that a 0.2-0.25% cut in the loan prime rate could follow, 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. The LPR affects corporate and household loans, including mortgages.

Pan also outlined plans to further support the struggling property market, including extending measures for two years and cutting the interest rates on existing mortgages.

The official policy announcements will be published on the central bank’s website, Pan added, without specifying exactly when.

China’s 10-year government bond yield hit a record low of 2% amid Pan’s lengthy address.

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.

“We feel today’s measures are a step in the right direction, especially as multiple measures have been announced together, rather than spacing out individual piecemeal measures to a more limited effect,” ING’s Song said.

“We continue to believe that there is still room for further easing in the months ahead as most global central banks are now on a rate-cut trajectory,” he said. “If we see a large fiscal policy push as well, momentum could recover heading into the fourth quarter.”

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. 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, meaning a reduction had been widely expected for months.

Unlike the Fed’s focus on a main interest rate, the PBOC uses a variety of rates to manage monetary policy. China’s government system also means that policy is set at a far higher level than that of the financial regulators who spoke Tuesday. During top-level meetings in July, there had been calls for efforts to reach full-year growth targets and to boost domestic demand.

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.