PBOC cuts rates on targeted monetary tools

China will cut interest rates on targeted monetary policy tools and expand related quotas to spur lending in key areas and improve market expectations, underscoring policymakers' resolve to support a solid economic start to the 15th Five-Year Plan (2026-30) period, officials and experts said.

Zou Lan, vice-governor of the People's Bank of China, said on Thursday that the central bank will reduce interest rates of various structural monetary instruments by 0.25 percentage points as it implements a moderately accommodative monetary policy, with the one-year rate on central bank lending facilities to be lowered from 1.5 percent to 1.25 percent.

Interest rates for other maturities will be adjusted accordingly, with effect from Monday.

Speaking at a news conference, Zou said the quota of key structural monetary instruments will be expanded. This includes a central bank lending quota worth 1 trillion yuan ($143.4 billion) to support small and medium-sized private companies, and a 400 billion yuan increase in the central bank lending quota for technological innovation and upgrades, bringing the total to 1.2 trillion yuan.

In terms of broad-based easing measures, Zou said there remains room this year for benchmark interest rate cuts and reductions in the reserve requirement ratio, or RRR — the proportion of deposits that banks must hold as reserves, which now stands at 6.3 percent on average.

"Overall, the exchange rate does not pose a strong constraint (on interest rate cuts)," Zou said. Domestically, he said that net interest margins of banks started to stabilize in 2025, and that the latest reduction in rates on structural policy tools will further lower funding costs of banks, making room for broad-based rate cuts.

Lou Feipeng, a researcher at the Postal Savings Bank of China, said the policy package has sent a clear signal of targeted easing, helping anchor market expectations while strengthening the precision and sustainability of financial support for the real economy.

"With banks' net interest margins stabilizing and about 50 trillion yuan of medium- to long-term deposits set to mature in 2026, expectations for a first-quarter RRR cut have strengthened. Heavy government bond issuance in January and related liquidity demand could further raise the odds of such a move," Lou said.

Zou, the central bank vice-governor, vowed to increase liquidity injections and flexibly conduct open market operations of buying and selling government bonds to create a supportive monetary and financial environment for the smooth issuance of government debt.

Zou added that the minimum down payment ratio for loans to purchase commercial properties will be lowered to 30 percent to help reduce inventory in the commercial real estate market.

Ming Ming, chief economist at CITIC Securities, said, "Given current capital market conditions, the new policies — cutting rates on structural tools while keeping an active tone on broad-based measures — will serve the dual goals of stabilizing market expectations and preventing asset bubbles."

According to Zou, the renminbi exchange rate is expected to continue "moving in both directions with flexibility", with China's vast market and complete industrial chain to help offset external uncertainties.