China’s central bank reportedly said it is likely to cut interest rates from the current level of 1.5 per cent “at an appropriate time” in 2025.
The apex bank, in comments made to the Financial Times, also said it would prioritise “the role of interest rate adjustments” and move away from “quantitative objectives” for loan growth – signalling that it embarks on a programme of interest rate reform that government advisors have called “an arduous task”.
Pointing out that these quantitative targets have been phased out in recent years, the Chinese central bank said it will pay more attention to the role of interest rate control, and improve the formation and transmission of market-oriented interest rates.
The remarks by the People’s Bank of China align with policymakers’ commitment made last year towards creating a more market-driven interest rate curve, Reuters reported.
Analysts anticipate it will make further changes this year to ensure credit demand is more responsive to monetary policy moves.
China’s 10-year and 30-year treasury yields both hit record lows on Friday amid expectations of fresh monetary easing.
The economy’s main rate is its seven-day reverse repo rate, which it last cut from 1.7 per cent to 1.5 per cent in late September.
The central bank’s comments underline a broader plan to overhaul its policy framework to transition the world’s second-largest economy away from state-directed bank lending.
Analysts say the role of capital markets in financing growth also requires deep structural changes in the economy alongside interest rate reform.
As part of that process, China’s governing Politburo last month eased the nation’s monetary policy stance for the first time in some 14 years to “appropriately loose” from “prudent”, a stance it adopted in 2010.
During a high-level economic agenda-setting meeting in December, China’s top leaders vowed to cut interest rates “in a timely manner” and reduce the amount of capital banks must hold in reserve, as part of a broader effort to spur lending and investment in the ailing economy.
The policy announcements come as China braces for more trade tensions with the United States as Donald Trump returns to the White House.
China’s economy showed an over-reliance on manufacturing and exports last year, with household demand disappointing as a severe property market crisis erodes consumer wealth and most government stimulus goes to producers and infrastructure.
Government advisers are recommending Beijing keeps its growth target unchanged this year, but have also called for more forceful fiscal stimulus to bolster depressed domestic demand.
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