China Policy Watch: PBoC Cuts Structural Rates by 25bps; Signals Further Easing

In a coordinated move to shore up the world's second-largest economy, the People's Bank of China (PBoC) announced a 25 basis point cut to its structural monetary policy tools on Friday. The reduction applies to re-lending and re-discount rates, effective January 19, 2026, aimed specifically at the agricultural sector, small businesses, and technological innovation.

Targeted Stimulus Over Flood-Irrigation

The central bank's approach remains surgical. By lowering the corporate financing cost for specific sectors without slashing the headline Loan Prime Rate (LPR) immediately, Beijing is attempting to revive credit demand while managing currency depreciation risks.

• Rate Cuts: 1-year re-lending rates dropped to 1.25%.
• Liquidity Injection: An expansion of the technology innovation loan quota to 1.2 trillion yuan.
• Forward Guidance: Officials explicitly stated that “there is still room for RRR and interest rate cuts this year,” signaling a dovish bias for Q1 2026.

Forex Implications

For the Australian Dollar (AUD), often a liquid proxy for Chinese growth, the reaction was muted. AUD/USD hovered near 0.6700, constrained by the Reserve Bank of Australia's cautious tone. However, the divergence between China's easing and the Fed's “higher-for-longer” stance places renewed pressure on the USD/CNY exchange rate, though strong M2 growth (rebounding to 8.5%) suggests domestic liquidity is finding its way back into the system.