China's Central Bank to cut interest rates next month at the earliest? Experts predict the timing of policy adjustments

The Chinese Central Bank maintained the loan market quotes Intrerest Rate (LPR) unchanged this week, but economists believe that with the convening of the National People's Congress, policy adjustments may be imminent. Experts suggest that the People's Bank of China (PBOC) may lower the main Intrerest Rate as soon as after the March meeting to boost the economy.

LPR remains stable, in line with market expectations

China's Central Bank announced on Thursday that the 1-year LPR remained at 3.1% and the 5-year LPR remained at 3.6%, in line with market expectations from a Reuters survey.

LPR is calculated by the Central Bank of China based on the quotes submitted by specific commercial banks, and is usually applicable to the best customers of the banks. Among them, the 1-year LPR affects corporate loans and most household loans, while the 5-year LPR is the benchmark for mortgage Intrerest Rate.

When will the timing for interest rate cuts arrive? Experts predict that the RRR will be the first to be lowered.

The Central Bank of China is currently facing multiple considerations, including the narrowing of bank net interest margins, Renminbi exchange rate pressure, and the Federal Reserve slowing down its interest rate cuts. Pang Ming, Associate Professor of the Chinese University of Hong Kong Business School, stated that these factors have prompted China to postpone interest rate cuts.

However, Bloomberg predicts that China may cut the reserve requirement ratio (RRR) by 50 basis points as early as March, and reduce the 7-day reverse repo rate by 40 to 50 basis points within 2025.

7-day reverse repurchase Intrerest Rate affects market liquidity

Central Bank in China often uses the 7-day reverse repo Intrerest Rate to regulate liquidity in the banking system and influence the direction of LPR. Since falling to 1.5% last September, the Intrerest Rate has remained unchanged.

ING Chief Economist Lynn Song pointed out that the actual Interest Rate in China is still at a relatively high level, so there is still room for a reduction in the 7-day reverse repo Interest Rate in the first quarter. It is expected that the Central Bank may cut interest rates after the NPC meeting in March to promote investment and consumption.

The NPC session will set the economic target for 2025

China's National People's Congress will convene on March 5 and is expected to announce its full-year economic growth targets for 2025. Goldman Sachs forecasts that the government will keep its GDP growth target unchanged at "about 5%" but may cut its inflation target from 3% to 2%.

In addition, the Chinese government is expected to reiterate its commitment to the 'stable growth' monetary policy, while emphasizing maintaining the Renminbi exchange rate within a reasonable range.

The exchange rate of the Renminbi affects economic strategies

The balance between RMB stability and economic growth has become a key consideration in China's Central Bank policymaking. A weaker renminbi can help boost export competitiveness, but a stronger exchange rate could push up import costs, putting pressure on weak domestic demand.

Pan Gongsheng, President of the Central Bank of China, recently stated at a conference in Saudi Arabia that the stability of the RMB exchange rate is crucial to global economic and financial stability. He emphasized that Beijing will adopt an active fiscal policy and maintain a loose monetary policy.

In recent months, the renminbi has faced some depreciation pressure, especially since the US presidential election in November last year, the offshore renminbi has fallen by nearly 2.5% against the US dollar. However, there has been a recent rebound in the past few weeks, with a 0.2% appreciation on Thursday, reporting 7.2673.

Trade wars and monetary policy: Challenges of Central Bank decision-making

China's economic recovery is stumbling, facing challenges of a sluggish real estate market and weak consumer demand. Manufacturing activity unexpectedly contracted in January, while service activities also showed signs of weakness, increasing market expectations for further stimulus policies.

In addition, the trade friction between the United States and China remains an important variable affecting the decision-making of the Central Bank of China. After taking office last month, President Trump immediately imposed a 10% tariff on all imported goods from China and maintained the existing tariff of up to 25%.

However, market fears of a trade war have eased. DBS Bank analysts believe that rising expectations of a comprehensive agreement between the United States and China may help stabilize sentiment in the yuan.

At the same time, the monetary policy direction of the Federal Reserve also affects China's room for interest rate cuts. Federal Reserve officials emphasize that they will not rush to cut interest rates before ensuring that inflation further falls, which means that there are still variables in the global monetary environment that may affect the timing of the Central Bank of China.

How to choose between China Central Bank?

With the Chinese government determining the economic direction for 2025 at the March National People's Congress, the market will closely monitor whether the Central Bank chooses to cut interest rates to stimulate the economy or prioritize stabilizing the Renminbi exchange rate.

In any case, China's monetary policy still needs to balance growth with exchange rate stability, and changes in the external environment, especially the Fed policy and the U.S.-China trade relationship, will continue to influence China's economic decision-making.

This article China Central Bank will cut interest rates next month at the earliest? Experts predict the timing of policy adjustments first appeared in Chain News ABMedia.