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Home » China Cuts Interest Rates to Shore Up Economy Hit by Trade War

China Cuts Interest Rates to Shore Up Economy Hit by Trade War

May 7, 20253 Mins Read Business
China Cuts Interest Rates to Shore Up Economy Hit by Trade War
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China’s central bank cut interest rates and made it easier on Wednesday for banks to increase lending and pump more money into the economy, in the most significant policy steps taken by Chinese officials to limit the impact of the trade war with the United States.

The central bank, the People’s Bank of China, cut short-term interest rates and the amount of funds banks have to hold in reserve in a series of 10 measures. In a series of steps intended to keep the economy moving and people spending, Chinese officials removed restrictions on auto financing firms and freed up more money for banks to lend for various government priorities, including scientific and technological innovation.

At a briefing of top financial officials, Pan Gongsheng, the governor of the central bank, said it was carrying out a “moderately loose” monetary policy in the face of a global economy “full of uncertainties, with intensified economic fragmentation and trade tensions disrupting global industry and supply chains.”

The announcement, billed as policies to stabilize markets, came shortly after Washington and Beijing announced that top officials from the Trump administration will meet with Chinese counterparts this week during a trip to Geneva. This will mark the first formal meeting about trade between the two countries since President Trump raised tariffs on Chinese imports to 145 percent almost a month ago.

The move sparked a retaliatory response from Beijing, which lifted its own tariffs on American imports to 125 percent. The standoff between the two countries has brought global trade to its knees, jeopardizing the outlook for the world’s two largest economies and many other countries.

Last week, China reported a sharp monthly slowdown in manufacturing activity, dragged down by a plunge in new orders of goods for export.

The CSI 300, an index of large companies traded in Shanghai and Shenzhen, inched 0.5 percent higher after the announcement, while Hong Kong’s Hang Seng Index gained 1.4 percent.

The central bank reduced its so-called reserve requirement ratio — the amount of money that the country’s commercial banks are required to hold as reserves — by half a percentage point, freeing up money that can be used for loans. Beijing cut the ratio by half a percentage point in September as part of a package of measures to revive economic growth.

Mr. Pan, who had signaled in March that the central bank would take this step at some point during the year, said reducing the reserve ratio is expected to provide about $139 billion in long-term liquidity to the market.

The Chinese central bank also cut its benchmark seven-day interest rate to 1.4 percent from 1.5 percent.

Zixu Wang contributed reporting.

Banking and Financial Institutions China Customs (Tariff) Economic Conditions and Trends Interest Rates International Relations International Trade and World Market People's Bank of China Politics and Government
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