China Slashes Key Interest Rates, Doles Out $138B Stimulus As US Trade Talks Loom

China's central bank and financial regulators announced a comprehensive stimulus package on Wednesday, aimed at bolstering economic growth in the face of escalating trade tensions with the United States. 

The People's Bank of China (PBOC) reduced the seven-day reverse repurchase rate by 10 basis points to 1.4% and lowered the reserve requirement ratio (RRR) by 50 basis points, releasing nearly 1 trillion yuan ($138.6 billion) into the financial system.

In addition to these monetary policy adjustments, the PBOC announced a 25-basis-point cut in mortgage rates under the housing provident fund, reducing rates on five-year loans for first-time homebuyers to 2.6% from 2.85%. 

The central bank also plans to gradually eliminate reserve requirements for auto financing firms. 

These measures are part of a broader effort to stimulate key sectors, including technology, real estate, and elderly care. 

The government has established a 500-billion-yuan relending facility to support consumption and elderly care initiatives. 

Further policy actions to assist small and medium-sized enterprises and the private sector are expected to be announced soon.

The stimulus package comes ahead of planned trade talks between Chinese Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent in Switzerland later this week. 

These discussions are seen as a potential turning point in the ongoing trade war, which has seen U.S. tariffs on Chinese goods reach 145% and Chinese retaliatory tariffs at 125%.

In response to the policy announcements, Chinese stock markets rallied, with the Hang Seng Index rising over 0.5%. The iShares China Large-Cap ETF (FXI) closed at $35.27, up 1.15 % on the day. 

The iShares MSCI China ETF (MCHI) ended Tuesday at $53.95, gaining 1.03%, while the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) closed at $26.45, up 0.38%.

($1= 7.22 Chinese yuan)

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