The ongoing trade tensions between the United States and China in recent years have put great pressure on the economies of both countries, especially for China, which relies heavily on the export sector and foreign investment. Since the beginning of 2025, the United States government has again raised import tariffs on various products from China, expanded the list of goods subject to high import duties, and tightened trade regulations. These conditions have caused China’s exports to the United States to decline sharply, while the manufacturing sector has contracted and foreign investment has slowed. Amid the uncertain global situation, the Chinese government must take quick and measured steps to maintain economic stability and prevent a deeper slowdown in growth.
In response to these external pressures, the People’s Bank of China (PBOC) announced a cut in the seven-day reverse repo rate by 10 basis points to 1.4%. In addition, the PBOC also lowered the reserve requirement ratio (RRR) of banks by 50 basis points. This policy is expected to release around 1 trillion yuan of additional liquidity into the national banking system. This move is part of a more accommodative monetary stimulus strategy, with the main objective of maintaining economic growth momentum amid global uncertainty and pressure from trade wars.
Improving Liquidity and Encouraging Credit to the Real Sector
One of the main objectives of cutting interest rates and reducing the reserve requirement ratio is to increase liquidity in the banking sector and encourage lending to the real sector. With lower borrowing costs and lower required reserves, Chinese banks have more room to extend credit to businesses, especially in the manufacturing, trade, and small-medium enterprise sectors that have been most affected by the economic slowdown. This additional liquidity injection is expected to strengthen domestic consumption and private investment so as to withstand the pace of economic slowdown due to declining exports and other external pressures.
In addition, this policy also serves to maintain domestic financial market stability. With increased liquidity, banks can better manage credit risk, while businesses have easier access to business financing. This is important to maintain the resilience of the national economy, given that the export sector, which has been the backbone of China’s economic growth, is facing major challenges due to the trade war. By strengthening domestic demand and promoting consumption-based growth, China seeks to reduce dependence on exports and build a more sustainable economic foundation.
Response to External Pressures and Efforts to Maintain Market Confidence
The PBOC’s monetary stimulus policy is also a strategic response to external pressures due to trade wars and global economic fragmentation. The increase in import tariffs by the United States has reduced the competitiveness of Chinese products in the global market and worsened growth prospects. By lowering interest rates and easing monetary policy, the Chinese government wants to send a strong signal to the market that it is ready to maintain economic stability and support businesses amid external turmoil. In addition, this stimulus is expected to maintain investor confidence, curb yuan weakness, and create room for more constructive trade negotiations with the United States.
This step is also important to prevent capital outflows that could worsen the domestic financial market situation. By stabilizing the yuan exchange rate and strengthening market confidence, China hopes to attract foreign investment and promote more inclusive economic growth. In addition, this policy also provides time for the government to carry out structural reforms in key sectors, such as technology, energy, and finance, to strengthen the competitiveness of the national economy in the long run.
Interest rate cuts and monetary policy easing by the Central Bank of China are important steps to maintain national economic stability amid growing external pressures. This policy is expected to strengthen liquidity, encourage credit growth, maintain market confidence, and strengthen China’s position in facing global challenges, especially the trade war with the United States.
