The People’s Bank of China (PBOC) has announced a set of monetary and financial measures, including cuts to interest rates on structural policy tools. Notably, the one-year relending facility rate will be lowered from 1.50% to 1.25%.

This decision comes in response to sluggish new bank lending activity in China during 2025. While the rate cut aims to support the banking sector, it is unlikely to significantly boost domestic demand, which remains a primary challenge for Beijing. Targeted measures to stimulate demand are still lacking.

The central bank’s focus with this move is to provide banks with cheaper liquidity by reducing their funding costs. This should encourage banks to increase lending, particularly to smaller and medium-sized enterprises. Essentially, this is a targeted supply-side intervention designed to ease credit availability.

However, demand-side issues persist. The ongoing property market downturn, weak credit appetite, and financial difficulties faced by smaller firms continue to hamper economic growth. Beijing will need to develop further strategies to address these fundamental challenges.

The PBOC has confirmed that the new lower rates will take effect from 19 January.

Original Source: Justin Low of investinglive.com