Will China Step Up Stimulus This Weekend?

Will China Step Up Stimulus This Weekend?

July 17, 2026

One of the more important events for commodity currencies could happen this weekend, as the People’s Bank of China (PBOC) will hold its monthly policy meeting on Sunday. Markets find the event difficult to predict, and there are no formal expectations to track. That means any surprise could have a significant impact on currency markets.

However, expectations have risen after China’s Q2 data came in well below forecasts. Investors hope the central government will step up stimulus measures to reach its 5.0% growth target. The economy’s underperformance in Q2 may have resulted from temporary issues, such as the war in Iran affecting energy production. In any case, one of the most effective ways China can stimulate the economy is through more accommodative central bank policy.

So, a Rate Cut?

The PBOC does not conduct policy in the same way as most central banks. Instead of relying mainly on interest rates, it focuses on managing liquidity. This is partly because the central government has strong influence through major state-owned enterprises. These companies can stimulate the economy through lending because the state guarantees them.

As a result, the PBOC targets the amount of money available in circulation more directly. Instead of setting an interest rate target, it adjusts the Reserve Requirement Ratio (RRR, or “triple R”). This ratio determines how much money banks must keep in reserve to cover withdrawals. Lowering the RRR allows banks to increase lending and expand the money supply. Raising the RRR forces banks to reduce lending and slows money growth.

China Has Room for Stimulus

The main limitation governments face when supporting the economy is that deficit spending can increase inflation. Central banks usually respond by raising interest rates. Private investors can also push rates higher by demanding higher yields on government debt. The energy supply crisis has increased inflation and pushed interest rates above many central banks’ targets. That leaves many countries with less room to support growth.

However, China, despite being the world’s largest crude importer, has much lower inflation than other major economies. Part of the reason is that China has reduced its use of imported crude by drawing on its distillate reserves. This supports the economy and gives policymakers more room to provide stimulus. The PBOC can also support growth through more accommodative policy.

When Will the PBOC Ease?

Markets remain almost unanimous in not expecting the PBOC to use its strongest tool, an RRR cut. Most investors expect the next cut early next year. However, the bank could hint at an earlier move, which would strengthen expectations for easing.

Markets already expect some accommodative measures, such as lower overnight repo rates. If the PBOC fails to deliver any easing, commodity currencies could face pressure. The Australian dollar could be especially vulnerable because Australia exports large amounts of raw materials to China. The New Zealand dollar could also weaken after outperforming last week following softer Chinese data.