Defying Economic Slump: China’s Central Bank Holds Firm on Rates Amid 2025’s Worst Month

China’s economy just posted its ugliest numbers of 2025—yet the PBOC refuses to blink.

The rate-cut standoff: While markets scream for stimulus, Beijing’s bankers keep their fingers off the trigger. No liquidity lifelines here.

Behind the poker face: Speculation swirls about shadow tools in play—maybe another round of ‘cryptic’ reserve ratio tweaks instead of headline-grabbing cuts?

Wall Street’s ulcer factory: Another masterclass in keeping traders guessing. At this rate, antacids will outperform Chinese equities this quarter.

PBOC delays stimulus as growth slows, inflation outlook shifts

In July, China’s economy slowed sharply. Domestic policies aimed at cutting overcapacity, combined with increasing tariffs, hit production and trade. Infrastructure projects saw weaker investment, and consumers kept their wallets closed. Private sector demand stalled.

Still, the economy posted a 5.3% year-on-year GDP growth in the first half of 2025. That’s just enough for policymakers in Beijing to believe they can survive a weaker second half and still land close to the official target of around 5%.

Citigroup economist Yu Xiangrong noted in a Sunday report that “structural policies could be a more important venue for the PBOC in the next few months compared with broad-based rate or RRR cuts.” The bank seems confident enough in the underlying economic structure to hold back on any aggressive interventions, for now.

The PBOC also addressed the ongoing deflation concerns that have haunted China for over two years. While the headline inflation figures are still soft, the Core consumer price index, which excludes unstable items like food and energy, has shown some improvement recently.

The central bank pointed to efforts like the crackdown on “disorderly” pricing and a renewed push to support consumer spending as moves that should help the inflation outlook recover further.

Financial system stability and market intervention on the agenda

Beyond inflation and growth, the PBOC signaled worries about how money flows inside the country’s financial system. In the report, it pledged to stop funds from idly circulating, showing clear concerns about financial loopholes and systemic risks. That’s another reason the central bank doesn’t want to rush into broad monetary easing.

Goldman Sachs said Saturday that this caution reflects how the PBOC sees the balance between liquidity and control. Any additional stimulus could lead to arbitrage and speculation, something Beijing is now actively trying to block.

In January, the PBOC set up a macro-prudential and financial stability committee, answering calls from top officials to strengthen its oversight role. That was about control. The bank’s responsibilities have widened in the last few years, especially when it comes to property and stock markets.

Earlier this year, it even supported the creation of a quasi-stabilization fund for equity purchases, stepping in to calm stock market volatility.

Despite the hands-off approach for now, analysts still expect action if the slowdown gets worse. Most forecasts include a 10 to 20 basis point rate cut and a 50 basis point cut to the RRR by the end of the year. 

Some also see the government releasing a 500 billion yuan ($70 billion) quasi-fiscal stimulus package, aimed at supporting demand more directly.

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