China’s central bank is not cutting rates despite the economy’s worst month in 2025

China’s central bank isn’t reaching for the rate cut button, even after the economy had its worst monthly performance so far in 2025.

The People’s Bank of China said late Friday that it will continue to push its “moderately loose” monetary policy, but made no promises about cutting interest rates or the reserve requirement ratio (RRR) anytime soon.

The statement came in its quarterly policy report, published just hours after new data confirmed slowing domestic demand.

According to Bloomberg, analysts at major financial firms including Citigroup and Goldman Sachs said the central bank’s language shows it has no immediate plans for major easing. Instead, the PBOC is focused on selective, targeted support measures.

That means any broad interest rate cuts or RRR reductions will likely be postponed until later this year, only if things get worse. “Its emphasis on executing existing policies and targeted easing signaled limited appetite for broad-based monetary easing,” said Chen Xinquan, an economist at Goldman Sachs.

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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