Economy

China’s PBOC Stands Pat: Why Export Strength and Stock Rally Delay Rate Cuts?

China‘s PBOC held its key interest rate steady despite US cuts. Strong exports and the stock market give pause.

September 18, 2025, 11:32 AM

The front view of the People's Bank of China building in Beijing with a Chinese flag

The headquarters of the People's Bank of China in Beijing, a central financial institution of China. By By Shutterstock.com / Shan_shan.

Executive Summary

China’s central bank, the People’s Bank of China (PBOC), maintained its key interest rate at 1.40% on Thursday, indicating a cautious stance on monetary easing.

The PBOC’s decision is underpinned by resilient export performance, a robust stock market rally nearing 10-year highs, and an economic slowdown that is less severe than initially projected.

While some analysts anticipate potential monetary easing later in the year to achieve the “around 5%” annual growth target, the PBOC is currently balancing supporting economic growth with managing financial stability risks, particularly in the buoyant stock market.

The Story So Far

The People’s Bank of China (PBOC) is currently maintaining its key interest rates, adopting a cautious stance on monetary easing despite a broader economic slowdown and the U.S. Federal Reserve’s rate reduction. This approach is informed by surprisingly resilient export performance, a robust domestic stock market rally nearing 10-year highs, and an economic deceleration that is not as severe as initially anticipated, allowing policymakers to defer immediate stimulus to avoid inflating a potential stock market bubble while still aiming to achieve the annual growth target of “around 5%.”

Why This Matters

China’s central bank holding its key interest rate steady signals a cautious approach to monetary policy, prioritizing financial stability and avoiding asset bubbles over immediate, aggressive stimulus, largely due to resilient exports and a robust stock market. This stance suggests policymakers are comfortable deferring major easing measures for now, though future cuts remain possible later in the year to ensure growth targets are met, especially if the economic slowdown intensifies.

Who Thinks What?

The People’s Bank of China (PBOC) maintained its key interest rate, signaling a cautious approach to monetary easing, supported by resilient export performance and a robust stock market rally, despite an anticipated economic slowdown.

Ting Lu, chief China economist at Nomura, suggests that major stimulus measures could risk inflating a stock market bubble, though he indicated the central bank might consider a modest rate cut if market corrections occur.

Xing Zhaopeng, senior China strategist at ANZ, anticipates potential monetary easing measures later in the year to ensure the economy remains on track to achieve its annual growth target of “around 5%.”

China’s central bank, the People’s Bank of China (PBOC), maintained its key interest rate unchanged on Thursday, signaling a cautious approach to monetary easing despite the U.S. Federal Reserve’s rate reduction. Policymakers appear to be in no rush to implement fresh stimulus, bolstered by resilient export performance and a robust stock market rally, even as the broader economy experiences a widely anticipated slowdown.

PBOC Holds Rate Steady Amid Liquidity Injection

The PBOC injected 487 billion yuan ($68.56 billion) into the financial system through seven-day reverse repos during its open market operations on Thursday. The interest rate for these operations, which serves as the economy’s main policy rate, was kept steady at 1.40%, consistent with previous operations.

This decision comes as market watchers note that the magnitude of China’s economic deceleration is not as severe as initially assumed. Detailed August activity data and anecdotal evidence suggest that the resilience in Chinese exports is likely to continue, potentially allowing the government to defer some planned policy support to the following year.

Analysts Weigh Risks and Future Easing Prospects

Despite some recent gloomy economic data, Ting Lu, chief China economist at Nomura, suggests that major stimulus measures could risk inflating a stock market bubble. However, he indicated that the central bank might consider a modest 10-basis-point rate cut in the coming weeks if market corrections occur.

China’s stock market has indeed shown significant strength, with the benchmark Shanghai Composite Index nearing its 10-year highs. This performance provides policymakers with more flexibility in their monetary decisions.

Other analysts, including Xing Zhaopeng, senior China strategist at ANZ, anticipate potential monetary easing measures later in the year. Such actions would aim to ensure the world’s second-largest economy remains on track to achieve its annual growth target of “around 5%.”

Xing noted that the current pace of growth slowdown is not yet sufficient to undermine the annual target. He also emphasized that the 15th Five-Year Plan and long-term structural reforms remain key priorities, suggesting that policy focus may shift back to short-term growth considerations after the Fourth Plenary session.

Outlook for Monetary Policy

The PBOC’s decision to hold rates reflects a balancing act between supporting economic growth and managing financial stability risks, particularly in the buoyant stock market. While resilient exports and a less severe slowdown provide breathing room, analysts remain divided on the timing and necessity of future easing, with some expecting moves later in the year to underpin growth targets.