Liquidity confession: China cuts rates after admitting trade talks
Just hours after Beijing finally caved—admitting it had been quietly engaging in pre-trade talks with the U.S. despite days of denials and diplomatic gaslighting—it dropped the mask and the rates. The timing was no accident. This wasn’t policy—it was a confession, camouflaged as a monetary tweak to steady the ship and project negotiating strength ahead of face-to-face talks with Washington. A facade of leverage, nothing more.
The People’s Bank of China delivered a 50bps cut to the reserve requirement ratio, releasing a cool 1 trillion yuan into the system. The 7-day reverse repo rate was also trimmed to 1.4%. Toss in relending tools for everything from eldercare to tech and SMEs, and it’s clear: Beijing is throwing liquidity at the wall, hoping something sticks.
But the market’s reaction? Predictably muted. Stocks are bid but no moonshot in sight, and the offshore yuan drifted weaker toward 7.22.
That tepid market response speaks volumes. Because let’s be honest—this isn’t a rates problem, it’s a demand problem. China’s real economy isn’t thirsty for credit, it’s paralyzed by weak confidence, property rot, and collapsing export flows. You can lead the horse to water, but you can’t make it drink—especially when the water’s tainted with deflationary fear and policy fatigue.
This wasn’t proactive policymaking. It was reactive damage control. After getting blindsided by Trump’s 145% tariff barrage, Beijing is finally admitting—without saying it—that the slowdown is deeper than they let on. Cutting rates hours after announcing trade talks in Switzerland isn’t strategy, it’s triage.
Pan Gongsheng tried to paint it as structural support. But structural tools now make up 13% of the PBOC’s balance sheet, and it still feels like window dressing. Markets have seen this routine before: slow-drip easing, jawboning, no bazooka. The traders who chased the recent rebound in Hang Seng Tech are now profit-taking, not pressing bets.
China just pulled the goalie—slashed rates, dropped 1 trillion yuan into the system three hours after admitting they’re back at the trade table. Classic playbook: juice the economy, show up to negotiations with a full clip.
Meanwhile, the Fed tomorrow? They’ll sip tea, nod solemnly… and do absolutely nothing.
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
