China Signals Further RRR and Interest Rate Cuts to Support Growth

The People's Bank of China (PBoC) withdrew cash from the financial system for the first time in a year, a cautious signal that keeps its policy options open as higher oil prices filter through the economy, as reported by Bloomberg. The central bank drained a total of CNY 890 billion ($129 billion) of liquidity via short-term open market operations in March and absorbed another CNY 250 billion through longer-term tools, including outright reverse repurchase agreements and the medium-term lending facility. According to Bloomberg calculations based on official data, commercial banks likely recorded their first net repayment of PBoC loans since last May. The withdrawal marks an abrupt reversal from months of liquidity buildup, as officials steer the economy amid a rebound in growth at the start of the year and rising oil prices.

The People’s Bank of China (PBOC) will continue to implement a moderately loose monetary policy in 2026 and will utilize tools such as reserve requirement ratio (RRR) cuts and interest rate reductions to ensure sufficient liquidity, according to central bank governor Pan Gongsheng, as reported by Xinhuanet. Monetary policy will focus on promoting stable economic growth and a reasonable recovery in prices, using both incremental and existing measures to create a favorable monetary and financial environment for high-quality development and the stable operation of financial markets, Pan told Xinhua in an interview. “There is still room for further RRR and interest rate cuts this year,” he said, adding that the PBOC will work to ensure the effective implementation and supervision of interest rate policies to keep overall financing costs at a low level. The central bank will also seek to enhance the flexibility of its monetary policy tools.

China’s central bank announced on Thursday cuts to sector-specific interest rates to provide an early boost to the economy, and signalled that it has room this year for further reductions in banks’ cash reserve requirements and broader rate cuts, as Reuters reported. Zou Lan, deputy governor of the People’s Bank of China (PBOC), said it would lower interest rates on its structural monetary policy tools by 25 bps on January 19, a move that tends to have a limited impact on growth compared with cuts to benchmark policy rates. The one-year relending rate will be reduced from 1.5% to 1.25%, with rates for other maturities adjusted accordingly. Structural monetary policy tools are central bank instruments designed to target specific sectors or areas of the economy, such as small firms, tech innovation, and green development. Outstanding loans made via structural tools totalled CNY 5.9 trillion ($846.84 billion) at the end of March 2025, central bank data showed.