China Moves Fast! Slashes Interest Rate to 1.40% Ahead of Key Trade Talks with U.S.

 

China Moves Fast! Slashes Interest Rate to 1.40% Ahead of Key Trade Talks with U.S.

On May 7, 2025, the People’s Bank of China (PBOC) announced major economic stimulus measures to cushion the impact of the ongoing trade tensions with the U.S. and prepare for high-level trade negotiations between the two nations.

Key Measures Announced:

Policy Interest Rate Cut: The 7-day reverse repo rate was cut by 10 basis points, from 1.50% to 1.40%, effective May 8.

Reserve Requirement Ratio (RRR) Cut: The RRR for commercial banks was lowered by 50 basis points to an average of 6.2%, effective May 15. This is expected to inject around 1 trillion yuan (approx. $138 billion USD) in liquidity into the economy.

Additional Support Measures: These include expanded investment quotas for insurance companies in the stock market, the creation of a new low-cost lending facility for tech and social service sectors, and selective cuts in mortgage interest rates.

These moves come just days before a scheduled trade meeting between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Switzerland. The two sides are expected to discuss easing tariffs and export controls.

Analysts view this stimulus as a strategic move by Beijing to strengthen its domestic economy and boost its bargaining position ahead of the talks.

Markets reacted positively, with Hong Kong’s Hang Seng Index rising 1.7% and China’s CSI 300 gaining 0.5% following the news of rate cuts and renewed trade discussions.

However, uncertainty remains about whether the upcoming negotiations will yield any tariff rollbacks, especially as U.S. President Donald Trump maintains a tough stance toward China.