China said it would lower its benchmark interest rate and reduce the amount of currencies banks need to be required as reserves, thereby supporting the economy in the face of a trade war with the United States.
China will reduce the bank's reserve demand ratio by 0.5 percentage points and reduce several key interest rates to release long-term liquidity ($138 billion) into the banking system, said Pan Gongsheng, the Governor of the People's Bank of China.
Speaking with officials from two other financial regulators at a press conference Wednesday, Pan said the central bank would lower the benchmark seven-day repurchase rate by 0.1 percentage point to 1.4%, and lower deposits and other interest rates on refinancing loans.
Beijing introduced these measures in a bruised trade war with the United States, which began to attack the country's massive manufacturing industry, many export orders were cancelled, factories began to crack work and reduce production.
Beijing and Washington said on Wednesday that they will hold their first trade talks since U.S. President Donald Trump launched a trade war as both sides search for off-road ships to reduce penalties.
The trade war is because China is already fighting weak domestic demand, forcing Beijing into a continuous wave of monetary policy since last year.
Pan said the latest measures were due to “uncertainty in the global economy, economic divisions and trade tensions that undermined global industrial supply chains.”
Pan said cutting banks’ reserve ratios means the weighted average across the industry will drop from 6.6% to 6.2%.
PBOC will also reduce the reserve requirement ratio of financial leasing and vehicle finance companies from 5% to zero, which will free up capital and improve their lending capacity.
Pan said the cost of borrowing from a government-led home purchase program will be reduced by 0.25 percentage points to 2.6% to "support residents' strict housing needs and help the real estate market stabilize."
Li Yunze, director of the financial department regulator of the State Financial Regulatory Authority, said China will take new measures to support exporters “to stabilize their operations and help them expand their markets.”
He added that China will also introduce new financing mechanisms to support the sick real estate sector and expand pilot programs to allow more funds from insurers to enter the stock market.
"We are taking full advantage of insurance funds as patients, long-term capital and can enable them to enter and stabilize the market with greater strength," Li said.
After opening up, Hong Kong's Hang Seng Index rose 2.2%, while the mainland China CSI 300 index rose 0.7%. Free traded sea people weakened by 0.1% to 7 yuan per dollar.
Other reports by Wenjie ding in Beijing