To stimulate the economy and stabilize market sentiment, the limit for the “science and technology reloan” has been expanded to 154 trillion won.
The People’s Bank of China.
The Chinese central bank announced that it plans to cut the reserve requirement ratio (RRR) and policy interest rates. On the 7th, People’s Bank of China Governor Pan Gongsheng mentioned during a press briefing on the “Package Financial Policy to Support Market Sentiment” hosted by ministerial-level authorities including the People’s Bank of China, the State Financial Supervision and Administration Commission, and the China Securities Regulatory Commission, “We will lower the RRR by 0.5 percentage points to supply long-term liquidity of 1 trillion yuan (about 192 trillion won) to the market,” and added, “We will also lower the policy interest rate by 0.1 percentage points.”
However, he did not specify when the RRR and rate cuts would occur. The current average RRR in China is around 6.6%, and the authorities believe there is room for reduction.
He explained that the 7-day reverse repo rate would decrease from the current 1.5% to 1.4%, and through this, the Loan Prime Rate (LPR) would decrease by 0.1 percentage points. The LPR in China acts as a ‘de facto benchmark interest rate’. Governor Pan also announced a reduction of 0.25 percentage points in the rates for structural monetary policy tools.
On the same day, Governor Pan unveiled interest rate cut policies, reducing the ‘housing provident fund’ loan rate (a long-term mutual savings by companies and workers for home purchases) by 0.25 percentage points, and lowering the interest rate for the first home mortgage with a five-year maturity from 2.85% to 2.6%.
Amidst a prolonged domestic and real estate slump, the Chinese authorities have set “more aggressive fiscal policies,” such as increasing the fiscal deficit rate and expanding the issuance of special local government bonds, as this year’s macroeconomic policy. Alongside, calls for speeding up the introduction of economic stimulus policies, compounded by the tariff war with the Donald Trump-led second U.S. administration, have been persistent.
Governor Pan also proposed introducing a new reloan of 500 billion yuan (about 96 trillion won) for domestic demand promotion and elderly care, and increasing the limit for the “science and technology innovation and technological renovation reloan” from the current 500 billion yuan to 800 billion yuan (about 154 trillion won), an increase of 300 billion yuan.