The People's Bank of China (PBOC) announced interest rate and RRR cuts today (7th).

In relation to the changes in China's monetary policy, from the perspective of the logic of aggregate easing, the focus of “cutting RRR and interest rates” is to stabilize the growth of the economy, and that “stabilizing growth, expectations and confidence” requires monetary policy to be more loose to boost domestic demand and stabilize anticipations and confidence, Soochow Securities released a research report yesterday (6th) saying.

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A “timely interest rate and RRR cut” will not only stabilize domestic demand, but also help to achieve external equilibrium. Meanwhile, China's yield curve is already relatively flat, while a “rate cut” will help to revise the expectation of economic growth implied by the long-end interest rates like the 10-year and the 30-year rates.

At the same time, under the suspension of the national bonds, the short-end interest rates will be lowered to open up the room for the curve to be steepened.

In order to implement the statement of the meeting of the political bureau of the central committee in April, the policy financial instruments may provide financial support through long-term low-interest special loans, special construction funds, policy guarantees and other ways in three areas, such as technological innovation, consumption expansion, foreign trade stabilization and others, while the policy lenders may continue to expand the size of the issuance of policy financial bonds to raise funds, and do not rule out providing funding support for policy lenders through PSL in 2025.

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