China holds rates at 1.40% despite Fed cut and economic slowdown

China’s central bank kept its main policy rate unchanged on Thursday, just hours after the U.S. Federal Reserve slashed its own.

The People’s Bank of China (PBOC) chose to hold the seven-day reverse repo rate at 1.40%, resisting pressure to ease despite signs of a slowdown in the economy.

This came as the central bank injected 487 billion yuan, about $68.56 billion, into the banking system through open market operations. The reverse repo rate now acts as the country’s key benchmark for short-term liquidity.

Chinese officials appear to be holding off on more aggressive stimulus even though growth has been cooling. Instead of responding to the Fed’s move with a similar cut, Beijing is banking on strong exports and a stock rally to hold the line … for now.

Exports hold up as stock rally raises fears of overheating

The decision to hold the rate steady comes at a time when analysts expected further easing. But Hui Shan, chief China economist at Goldman Sachs, said the downturn wasn’t as bad as forecasted.

“Although the economy is slowing as expected, the magnitude of the deceleration appears not as big as we assumed,” Hui said. She also pointed out that August activity and feedback from businesses suggested that China’s exports remain surprisingly strong. She added that some of the stimulus planned for this year might now be pushed into 2026.

Stock performance is also shaping the central bank’s thinking. The Shanghai Composite Index has been climbing and is now trading near its highest level in a decade.

That rally has sparked concerns among economists about the risks of fueling a bubble. Ting Lu, chief China economist at Nomura, warned that large-scale stimulus could push stocks into dangerous territory.

However, Ting said the PBOC might consider a modest 10-basis-point cut in the coming weeks, if markets correct. But for now, they’re holding tight.

Even though growth has slowed, officials still believe the country can hit its “around 5%” full-year target without major stimulus. Xing Zhaopeng, senior China strategist at ANZ, said the government may still introduce easing later this year, likely in the fourth quarter.

But for now, the slowdown isn’t serious enough to derail the annual plan. Xing said long-term reforms tied to the 15th Five-Year Plan remain at the center of Beijing’s focus. Once the Fourth Plenary Session takes place in October, the government may then shift back to near-term growth policies.

Rare earth exports surge before Trump-Xi call

Separately, China reported a major jump in rare-earth exports in August. Customs data released Thursday showed overseas shipments of the materials hit 7,338 tons, the highest monthly volume since early 2012.

These materials, including high-performance magnets used in electronics and military hardware, have become a key issue in U.S., China trade talks.

Earlier this year, China restricted rare-earth exports in response to growing tensions with the United States. But following a temporary trade truce, those exports began to recover. Talks between U.S. and Chinese negotiators resumed this week in Madrid.

As those meetings wrapped, U.S. President Donald Trump said he would speak directly with President Xi Jinping by phone on Friday. The rare-earth spike came just before the expected call.

Beijing has not confirmed the phone meeting or commented on what will be discussed. But with rare earths playing such a critical role in tech and defense, they’re likely to come up. China still dominates global supply in that sector, and any shift in export policy could have ripple effects across supply chains worldwide

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