Monetary and Fiscal Measures in China to Boost Economic Growth and Address External Challenges

China has implemented a new set of monetary and fiscal measures aimed at revitalizing its economy amid mounting challenges stemming from weak domestic demand and ongoing pressure from U.S. tariffs. These steps include a 0.25 percentage point cut in the benchmark lending rate for commercial banks, bringing it down to 1.5%, in a move designed to reduce borrowing costs and stimulate credit activity.

In addition, the required reserve ratio for banks has been reduced by 0.5 percentage points, injecting approximately one trillion yuan (around USD 138.9 billion) in long-term liquidity into the financial system. This marks the first such cut in 2025, reflecting a broader effort to ease monetary conditions and support lending amid an economic slowdown.

The central bank also lowered the seven-day reverse repo rate from 1.5% to 1.4%, providing more accessible short-term liquidity to commercial banks. The announcement of these measures had an immediate impact on markets, with the Chinese yuan weakening in response to expectations of increased liquidity and lower yields.

In an effort to support the struggling real estate sector, the interest rate on mortgages for first-time homebuyers with loan terms exceeding five years was cut from 2.85% to 2.6%. This comes as the property market continues to face prolonged challenges, further exacerbated by the economic impact of the COVID-19 pandemic, which has weakened consumer spending and economic activity.

These recent moves signal a clear shift toward monetary easing aimed at stimulating innovation and boosting domestic consumption. They also serve as a countermeasure to the negative effects of U.S. trade policies, which have strained China’s export-driven economy. The overall direction creates favorable conditions for investment and borrowing at reduced costs.