China’s central bank says it will cut banks reserves, rates at proper time

BEIJING: China’s central bank said it will cut banks’ reserve requirement ratio and interest rates at “proper time” during a quarterly meeting of its monetary policy committee held last week, according to a statement published on Friday.

The committee of the People’s Bank of China (PBOC), suggested strengthening monetary policy adjustments and adopting a more forward-looking, targeted and effective approach, according to the fourth quarter meeting held on December 27.

The remarks echoed a Financial Times report on Friday, which cited the central bank as saying that the PBOC is likely to cut interest rates from the current level of 1.5 per cent “at an appropriate time” in 2025.

Such remarks align with policymakers’ commitment made last year towards creating a more market-driven interest rate curve. Analysts anticipate the central bank will make further changes this year to ensure credit demand is more responsive to monetary policy moves.

The PBOC said that it would prioritise “the role of interest rate adjustments” and move away from “quantitative objectives” for loan growth, the FT reported, as it embarks on a programme of interest rate reform that government advisors have called “an arduous task”.

The economy’s main rate is its seven-day reverse repo rate, which the PBOC last cut to 1.5 per cent from 1.7 per cent in late September.China’s 10-year and 30-year treasury yields both hit record lows on Friday on expectations of fresh monetary easing.

“(The PBOC will) enrich and improve monetary policy toolkit, conduct buying and selling of treasury bonds and pay attention to changes in long-term yields,” the central bank said in the statement.

It also pledged to smooth the transmission mechanism of monetary policy and improve the efficiency of money utilisation.Such comments underlined a broader plan to spur growth in the world’s second-largest economy, where a severe property crisis has eroded consumer wealth and household spending and most government stimulus was going to producers and infrastructure.

China’s decision-making Politburo last month shifted the nation’s monetary policy stance to “appropriately loose” from “prudent”, in a first such move since its “prudent” stance was adopted in 2010.

The PBOC’s pledges also come as China braces for more trade tensions with the United States as Donald Trump returns to the White House. The bank vowed it will stabilise foreign exchange market expectations and keep yuan reasonably stable.

Government advisers are recommending Beijing keeps its growth target unchanged this year at around 5.0 per cent, but have also called for more forceful fiscal stimulus to bolster depressed domestic demand.