China’s central bank surprised markets by announcing it has no plans to cut interest rates or required reserve ratios for now, even though the economy recorded its weakest monthly performance of 2025 in July.

In its quarterly policy report, the People’s Bank of China (PBOC) stated it will maintain a “moderately loose” monetary stance but will rely on targeted and selective measures rather than broad stimulus. According to economists at Citigroup and Goldman Sachs, this signals that major monetary easing is not on the table – at least for now.

Slowing Growth, But Beijing Holds Back

The Chinese economy slowed sharply due to a combination of domestic capacity curbs, higher tariffs, weaker infrastructure investment, and cautious consumers. Even so, GDP grew 5.3% year-on-year in the first half of 2025 – enough for Beijing to believe that even a weaker second half could still meet its official growth target of around 5%.

Citigroup economist Yu Xiangrong noted that structural policy will likely be more important for PBOC in the coming months compared to across-the-board rate cuts. The bank still has confidence in the economy’s fundamentals to avoid radical interventions.

Inflation, Deflation, and Consumers

Deflationary pressures have lingered for more than two years. While overall inflation remains weak, the core consumer price index (excluding food and energy) has recently shown signs of improvement.

PBOC said that boosting consumer spending and addressing “disorderly” pricing mechanisms should help stabilize inflation expectations.

Financial Stability as Top Priority

The central bank also stressed that its main goal is to safeguard financial system stability. It flagged risks related to uncontrolled capital flows and systemic gaps – one reason why it is reluctant to unleash broad monetary easing, which could encourage arbitrage and speculation.

Earlier this year, PBOC strengthened its oversight by creating a macroprudential and financial stability committee and supporting the launch of a quasi-stabilization fund for stock purchases to calm market volatility.

What’s Next?

Analysts at Goldman Sachs and others expect that if the slowdown worsens, PBOC may resort to a modest rate cut of 10–20 basis points and a 50-basis-point cut in reserve requirements by year-end.

Additionally, speculation is rising over a possible fiscal package worth 500 billion yuan ($70 billion) aimed at directly supporting domestic demand.

👉 For now, China is relying on patience and targeted measures instead of flooding the system with cheap money. For investors, this means no major monetary stimulus in the short term, but if growth continues to deteriorate, PBOC will likely be forced into stronger action.

#china , #economy , #GlobalMarkets , #Inflation , #worldnews

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