Daily Fundamental Analysis: China Lowers Interest Rates to Compact the Effect of the Trade War
China’s central bank announced major policy changes Wednesday, including rate cuts and increased market liquidity, to boost economic growth amid trade concerns.
The People’s Bank of China will reduce the seven-day reverse repo rate to 1.4% and lower the reserve requirement ratio, releasing 1000 billion yuan ($138.6 billion) into the market. These changes take effect Thursday and May 15, respectively.
Additional measures include support for technology and real estate sectors, a 500-billion-yuan relending tool for consumption and elderly care, reduced mortgage rates for first-time homebuyers, and lower reserve requirements for auto financing.
However, economists note these steps may have limited impact on credit demand. The government plans further support for small and medium enterprises, with more announcements expected soon.
The stimulus package comes as the yuan stabilizes near 7.20 to the dollar, having recovered from recent lows. Analysts suggest this stability gives the central bank more freedom to implement rate cuts without risking currency depreciation.
Yet fiscal policy measures remain absent and may only be introduced if the economy shows clear signs of decline, according to economists.
Stock futures rose Tuesday night as markets awaited the Federal Reserve rate decision and U.S.-China trade talks. Major indices gained strength: Dow futures up 0.7%, S&P 500 futures up 0.8%, and Nasdaq 100 futures up 1%.
The uptick followed news that Treasury Secretary Bessent and trade official Greer would meet Chinese officials in Switzerland, signaling potential progress after recent tariff tensions.
European markets expect mixed openings ahead of the Fed’s monetary policy announcement Wednesday. The FTSE 100 is set to open slightly lower at 8,59
The Fed’s rate decision comes today with only a 3.1% chance of rate cuts. Markets await Powell’s comments on rate trajectory and economic outlook.
