According to Wall Street Banks, China's Central Bank Will Implement Its Largest Interest Rate Cuts in a Decade Next Year

According to some Wall Street banks, as policymakers intensify efforts to support growth and halt deflation, the People's Bank of China is expected to implement its largest interest rate cuts in a decade next year. Goldman Sachs Group Inc. and Morgan Stanley are among the institutions forecasting a 40 basis point cut in the central bank's main policy rate in 2025. This would mark the largest reduction in a calendar year since 2015, bringing the seven-day reverse repo rate down to 1.1%. The median forecast in Bloomberg's latest survey indicated a 30 basis point reduction.

Goldman Sachs' chief economist for China, Hui Shan, stated, "Fiscal stimulus will need to play a heavy role in boosting demand next year, but lower interest rates are also necessary. We believe that significant macroeconomic easing, including the loosening of monetary policy, is required to counteract strong growth headwinds from both weak domestic demand and potential increases in U.S. tariffs."

Economists have called for the government to increase borrowing and spending and to take further measures to stabilize the long-standing real estate downturn. The interest rate cut forecasts suggest that China's low interest rate environment may persist, a trend that has recently also become a topic in the bond markets. The yield on 10-year government bonds fell below 2% for the first time this week, while China’s 30-year yield dropped below Japan’s.