People's Bank of China has rolled out a package of monetary policy measures to stabilize the market and expectations
On May 7, PBOC Governor Pan Gongsheng announced at a press conference held by the State Council Information Office a 0.5-percentage-point cut in the reserve requirement ratio (RRR), injecting approximately 1 trillion yuan of long-term liquidity into the market, alongside a 0.1-percentage-point reduction in policy interest rates. Additionally, the interest rate for individual housing provident fund loans was lowered by 0.25 percentage points, with the rate for first-home loans with terms exceeding five years dropping from 2.85% to 2.6%. Rates for other loan terms were adjusted accordingly.
The RRR cut aims to maintain ample liquidity and enhance credit supply capacity in specific sectors. This adjustment consists of two parts: first, a 0.5-percentage-point reduction for large and medium-sized banks, releasing over 1 trillion yuan in long-term liquidity; second, an improvement to the reserve requirement system for auto finance companies and financial leasing firms, with their reserve ratio being phased down from the current 5% to 0%.
The interest rate cuts reflect stronger counter-cyclical adjustments, with the reduction in housing provident fund loan rates supporting consumption. Starting May 8, 2025, the 7-day reverse repo rate will be adjusted from 1.50% to 1.40%. From the same date, individual housing provident fund loan rates will be cut by 0.25 percentage points, and structural monetary policy rates will also be lowered by 0.25 percentage points.
Industry experts noted that the rate cuts actively implement the requirements of the recent Politburo meeting, fully reflecting a moderately accommodative monetary policy stance. These measures are strong steps to stabilize employment, businesses, the market, and expectations. The RRR reduction helps maintain sufficient liquidity and strengthens credit supply in targeted areas. The newly introduced relending tools combine quantity and price adjustments, offering substantial support, broad coverage, and greater convenience, thereby leveraging the dual functions of monetary policy in both aggregate and structural terms.