The Chinese central bank is introducing a series of support measures amid a deepening economic slump

BEIJING – China will reduce the amount of cash banks must have on hand, known as the reserve requirement ratio (RRR), by 50 basis points, People’s Bank of China Governor Pan Gongsheng said at a news conference on Tuesday.

Pan, who spoke to reporters along with two other heads of financial regulators, did not indicate exactly when the central bank would ease policy but said it would happen in the short term. Depending on conditions, another cut of 0.25 to 0.5 basis points could occur by year-end, Pan added.

He also said the PBOC would cut the 7-day repo rate by 0.2 percentage points.

The yield on Chinese 10-year government bonds reached a record low of 2% after Pan’s opening speech.

Later in the press conference, he also indicated that a reduction in the prime rate of 0.2 to 0.25% is possible, without specifying when or whether he was referring to the one-year or five-year LPR. Last Friday, the PBOC kept key interest rates unchanged during the monthly setting.

Pan added that the official policy announcements would be published on the central bank’s website, but did not specify when.

The rare high-level news conference was planned after the US Federal Reserve cut interest rates last week. That signaled the start of an easing cycle that gave the Chinese central bank even more room to cut rates and stimulate growth despite deflationary pressures.

Pan became governor of the PBOC in July 2023. At his first press conference as central bank governor in January, Pan said the PBOC would cut the reserve requirement ratio (RRR). Such policy announcements are rarely made at such events and are usually distributed through online publications and state media.

He then told reporters in March, alongside China’s annual parliamentary meeting, that there was room to further cut the RRR. Such a decline is widely expected in the coming months.

In contrast to the Fed’s focus on one key interest rate, the PBOC uses a variety of interest rates to guide monetary policy. The PBOC on Friday did not change its lending prime rate, a benchmark that affects corporate and household loans, including mortgages.

China’s government system also means that policy is set at a much higher level than that of the financial regulators who spoke on Tuesday. Such top-level meetings in July called for efforts to achieve full-year growth targets and stimulate domestic demand.

While the PBOC has kept loan rates unchanged in the days since the Fed cut rates, it has moved to cut short-term interest rates, which determine money supply. The PBOC on Monday lowered the 14-day reverse repo rate by 10 basis points to 1.85%, but did not reduce the 7-day reverse repo rate, which cut in July up to 1.7%. Pan has indicated that he is the 7-day rate becomes the main policy rate.

Chinese economic growth has slowed, influenced by the real estate crisis and low consumer confidence. Economists have called for more stimulus, especially on the fiscal front.

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