While markets around the world are trying to find equilibrium amidst a variety of news, one of the largest economies on the planet decided to act decisively, and these steps could resonate even in our crypto spaces. We are talking about China, where the People's Bank (PBoC) recently rolled out a whole package of measures that immediately lifted the spirits of many analysts (and investors).
There are two main news items, and they sound like music to the ears of those waiting for stimuli: the reserve requirement ratio for banks (RRR) is being cut by 50 basis points, and the seven-day reverse repo rate is being lowered. Simply put, this means that a bunch of long-term money (estimated at around one trillion yuan!) is flooding into the banking system, and the cost of short-term borrowing for banks is decreasing. The RRR reduction, by the way, is the first this year and will take effect on May 15, while the reverse repo rate will already drop to 1.40% starting today (May 8). This is the first reduction of this key rate since September 2024, and it will likely pull other market rates down, making loans more accessible for businesses and the population.
Why all this "liquidity banquet"? The reason is obvious and was confirmed by the head of the PBoC, Pan Gongsheng: Beijing is actively seeking ways to stimulate economic growth and strengthen macroeconomic regulation. Despite all efforts, the engine of the Chinese economy seems to not be operating at full capacity, and the authorities are ready to fully utilize monetary incentives to support the "real sector". Moreover, these steps are being taken against the backdrop of ongoing and even escalating trade relations with the US. High American tariffs on Chinese goods, imposed by the Trump administration, and Beijing's retaliatory measures create serious headwinds for exports and the overall business climate. Easing monetary policy is one of the key ways to compensate for this external pressure and support domestic demand.
But the PBoC did not limit itself to just broad strokes like RRR and repo rates. They also announced quite interesting targeted measures. For example, they are lowering interest rates on housing provident fund loans for individuals by 0.25 percentage points starting May 8 – a clear signal of support for the real estate market. For auto financing companies and financial leasing, RRR is being cut by a full 5 percentage points, down to zero, to directly stimulate automobile consumption and investment in equipment upgrades. Additionally, they are increasing the volumes of preferential lending programs: the fund for technology is growing by 300 billion yuan (to 800 billion), a new program of 500 billion is being launched to support service consumption and elderly care, and programs for agriculture and small/medium businesses are being expanded. This means that it is not just a "flooding" of the system with money but an attempt to very precisely stimulate specific, priority sectors of the economy that should become growth drivers.
How did the markets react to this news? Quite predictably positively, at least in the moment! Chinese stock indices, such as the Shanghai Composite and Shenzhen Component, immediately recovered part of the losses from previous days and showed confident growth. Investors perceived the actions of the PBoC as a clear signal of the authorities' determination to support the economy, which reduces risks and increases appetite for riskier assets. However, the offshore yuan, as often happens when monetary policy is eased (more yuan in the system = each individual yuan is slightly cheaper), weakened against the dollar, crossing the 7.21 mark. On the other hand, the yield on 10-year Chinese government bonds remained near three-month lows, which is also logical given the decline in borrowing costs and the influx of liquidity.
An interesting nuance regarding this picture: amidst all this internal activity, news emerged about the upcoming meeting of Chinese Vice Premier He Lifeng with US Treasury Secretary Scott Bessen and US Trade Representative Greer in Switzerland this weekend. This is the first such high-level communication since Trump's inauguration in January. Market participants are very hopeful that this could be a step towards reducing trade tensions, which has added optimism and further supported the markets in anticipation of possible compromises.
By the way, we cannot overlook the data on foreign currency reserves. April showed a rise in China's reserves to a seven-month high ($3.241 trillion), despite the dollar's decline during this period. Gold reserves also increased, which corresponds with the dynamics of precious metal prices. This fact, although not directly related to the latest monetary measures, shows a certain resilience of China's external accounts, which is also a positive signal for overall stability.
And now the most interesting part for us, crypto enthusiasts! Historically, large liquidity injections and monetary policy easing in major economies often correlate with increased interest in risky assets, including cryptocurrencies. When traditional markets are flooded with cheap money, some of these funds seek higher returns and may flow into less conservative instruments. It is not surprising that against the backdrop of news from China, Bitcoin reportedly also showed positive dynamics, breaking through local resistance levels. Of course, the direct connection is not always obvious, and the crypto market operates by its own laws, but it is certainly worth paying attention to such powerful macroeconomic signals from the second-largest economy in the world, especially in the context of easing trade tensions. This creates a favorable backdrop for overall market optimism and may indirectly support risk appetite across all platforms.
In general, China is clearly demonstrating its readiness to use the full arsenal of monetary and fiscal tools to stimulate growth and counter external challenges. This is a powerful signal for global markets – when such a gigantic economy "turns on the printing press" (so to speak) and makes money cheaper, it inevitably creates waves across the globe, affecting currency rates, asset prices, and overall investment sentiment. How these measures will affect the long-term prospects of the Chinese economy and what other "waves" they will send through global markets, including crypto, will remain to be seen.
We continue to observe these large-scale economic maneuvers and their potential impact on the global financial landscape!
