On May 7, the People’s Bank of China (PBOC) cut its seven-day reverse repurchase rate from 1.5% to 1.4% and lowered the reserve requirement ratio (RRR) for banks by 0.5 percentage points. These changes are intended to make borrowing cheaper and boost liquidity in the financial system.
According to PBOC Governor Pan Gongsheng, the RRR cut will release around 1 trillion yuan (approximately $139 billion) into the banking system. The reverse repo rate cut will take effect on Thursday, while the RRR reduction will begin next week.
The decision comes just hours after China announced that it would hold trade talks with U.S. officials this weekend. These are the first talks since U.S. President Donald Trump reimposed tariffs of up to 145% on most Chinese imports. With exports at risk and economic growth slowing, the Chinese government is trying to strengthen its domestic economy in response.
China’s New Measures Target Tech, Real Estate, and Small Businesses
Alongside the rate and RRR cuts, China’s financial authorities rolled out a broad set of measures targeting key sectors. The RRR for auto finance and leasing firms has been reduced to zero from 5%. Interest rates on structural lending tools for commercial banks and policy banks have been lowered by 0.25 percentage points. The housing provident fund loan rate has also been cut by 0.25 percentage points.
The central bank increased the quota for its technology-focused relending program by 300 billion yuan, bringing the total to 800 billion yuan. These funds are aimed at helping companies upgrade equipment and participate in trade-in programs for consumer goods. Additionally, a new 500-billion-yuan lending facility has been created to support service sector consumption and elderly care.
To ease credit access for agriculture and small businesses, authorities expanded the allowance for related relending programs by 300 billion yuan. In the capital markets, two previously separate stock support tools will be merged, creating a single 800-billion-yuan facility. The PBOC also announced a new debt risk-sharing instrument to promote investment in bonds issued by tech firms.
These actions show Beijing’s concerns that without stronger support, China’s economy could miss its 2025 growth target of around 5%. Exports, which contributed 40% to GDP growth in the first quarter, are expected to decline sharply in the coming months due to U.S. tariffs.
U.S. Delegation Heads to Switzerland for Talks
U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are scheduled to meet Chinese Vice Premier He Lifeng in Switzerland later this week. While expectations for a breakthrough remain low, the timing of China’s rate cuts has drawn attention.
Economists noted that announcing the cuts ahead of the talks avoids the appearance of yielding to external pressure. It also allows Beijing to demonstrate it is proactively stabilizing its economy rather than reacting defensively to U.S. measures.
“This is not just monetary easing,” said Frances Cheung, managing director at Oversea-Chinese Banking Corp. “It’s a coordinated push to stabilize markets, encourage domestic consumption, and prepare for long-term resilience.”
