PBOC Slashes Tool Rates in Measured Easing Signal

The People's Bank of China (PBOC) has executed a targeted 0.25 percentage point cut to rates on its structural monetary policy tools, alongside quota expansions for relending facilities, to provide an early boost to the economy. This package includes 500 billion yuan in additional relending for agriculture and small businesses, plus 400 billion yuan for technological innovation, taking the tech-innovation relending quota to 1.2 trillion yuan.

TARGETED LIQUIDITY BOOST

The PBOC said the move was aimed at “boosting support to major strategic areas and weak links in the economy”. The rate reduction applies to all of the central bank's structural monetary policy tools, with the one-year relending rate lowered from 1.5% to 1.25% from 19 January, lowering borrowing costs for banks extending credit to priority areas. By raising quotas, the central bank aims to provide agriculture, small and micro enterprises, and tech innovators with cheaper capital.

“It looks like the PBOC is deploying a combination of tools except an outright policy rate cut,” said Frances Cheung, head of FX and rates strategy at OCBC Bank. The relending quota increases total 900 billion yuan, and the PBOC set aside a dedicated 1 trillion yuan relending quota for private firms, especially small and medium-sized ones, within its relending for agriculture and small businesses.

MODERATE EASING STANCE

The PBOC has said it will maintain a moderately loose monetary policy.

China's economic growth is expected to slow in 2026 from 2025, according to a Reuters poll. The PBOC's actions follow a series of reserve requirement ratio (RRR) cuts totaling 100 basis points since September 2024, freeing up significant liquidity. Benchmark lending rates like the loan prime rate (LPR) remain unchanged at 3.0% for one-year and 3.5% for five-year terms.

The yuan eased right after the announcement but quickly pared some of those losses.

ROOM FOR FURTHER CUTS

Deputy Governor Zou Lan, who announced the package, said there was still room this year to cut interest rates and the reserve requirement ratio.

PROPERTY MEASURE

Zou Lan also said the central bank would work with the National Financial Regulatory Administration to lower the minimum down payment ratio for commercial property mortgages to 30 percent.