PBoC likely to cut key rate further as policy eases, says Fitch
People's Bank of China (PBoC) is expected to make further cuts to its seven-day reverse repo (RR) rate in 2025, following a reduction from 1.5 per cent to 1.4 per cent on May 9, according to Fitch Ratings. The move aligns with the central bank's shift from a 'prudent' to a 'moderately loose' monetary stance, as announced in December 2024. The PBoC also reduced the Reserve Requirement Ratio for large banks to 9 per cent from 9.5 per cent.
Fitch has updated its Global Economic Outlook (GEO) to reflect the seven-day RR as China's primary policy interest rate, replacing the Medium-Term Lending Facility (MLF) rate due to structural changes in its implementation. If MLF rate forecasts were applied mechanically, the RR rate could fall to as low as 0.5 per cent by the end of 2025, Fitch said in a press release.
Despite a move towards a more price-based policy framework, the PBoC continues to use both price- and quantity-based tools. The central bank reaffirmed the role of the seven-day RR rate as its main policy rate and has created a tighter corridor for interbank rates, with overnight repo and reverse repo operations pegged 20 basis points below and 50 basis points above the RR rate, respectively.
PBoC may implement further cuts to its seven-day reverse repo (RR) rate in 2025, following a reduction to 1.4 per cent in May, according to Fitch Ratings. This aligns with its shift to a 'moderately loose' monetary stance. Fitch now considers the seven-day RR as China's main policy rate. Although deep cuts are projected, easing could be constrained by recent US-China trade de-escalation.
While aggressive easing is anticipated, the recent easing in US-China trade tensions may moderate the extent of future rate cuts.
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