The People’s Bank of China (PBOC) is considering a cut from its current 1.5% interest rate at an opportune moment in 2025, according to a report by the Financial Times. This aligns with Beijing’s ongoing strategy to create a more market-oriented interest rate framework, as officials pledged to steer the economy towards market-driven mechanisms last year.
The central bank is focused on replacing “quantitative objectives” for loan growth with interest rate adjustments, an endeavor described by government advisors as a challenging reform.
Recent changes in PBOC policy include the September reduction of the seven-day reverse repo rate from 1.7% to 1.5%. This forms part of a broader, ambitious plan to transition China’s economy away from state-directed bank lending.
The country’s Politburo has also adopted an “appropriately loose” monetary stance for the first time since 2010, as opposed to the long-held “prudent” approach. December’s top-level economic meeting saw Chinese leaders commit to timely rate cuts and a reduction in banks’ reserve requirements to revive lending and investment.
These policy shifts come amid looming trade tensions with the United States, as Donald Trump resumes the presidency. The Chinese economy remains heavily reliant on manufacturing and exports, with consumer demand weakened by a continuing property market crisis and limited government stimulus.
Government advisers recommend Beijing maintaining this year’s growth targets while advocating for stronger fiscal measures to stimulate domestic consumption.
