Insights 
VT 
The People’s Bank of China (PBOC) will reduce the relending rate by 25 basis points, bringing it down to 1.50%. This change is set to take effect from 7 May.
The relending facility primarily supports the stock market by providing low-cost funding for specific activities. These activities include share buybacks and increasing shareholding by companies.
Series Of Earlier Rate Cuts And Measures
This move is part of a series of earlier rate cuts and measures. These actions have been implemented to support economic objectives.
The People’s Bank of China’s decision to lower its relending rate to 1.50% adds to a sequence of initiatives intended to bring down borrowing costs and direct targeted liquidity into the equity market. The facility, by design, enables financial institutions to tap into cheaper credit with the aim of channelling that money towards corporate buybacks and investment in their own shares. By doing so, the authorities are smoothing conditions for domestic equity valuations and attempting to stabilize investor sentiment.
In the past, these tools have mostly been discreet and narrow in impact, but this adjustment marks a clearer shift towards more visible monetary support. Relending, though not as expansive as traditional rate policy or reserve requirement changes, operates with precision. It supports market functions without the broader inflationary risks tied to general rate cuts.
What we interpret from this update is a reaffirmation of intention from policymakers to anchor equity prices and prevent unwanted volatility fueled by deteriorating confidence. By incentivizing firms to amplify their participation in the market via buybacks or additional shareholding, liquidity is indirectly injected onto trading floors in a relatively controlled fashion.
Near Term Directional Bias For Traders
For traders, this tweak to the relending rate introduces a near-term directional bias that makes downward price pressure in equities less probable, at least domestically. We see this as encouraging for pricing stability, especially in sectors tied to state-owned enterprises or companies with strong government alignment. Volume clusters may shift slightly as market makers factor in greater policy-driven support.
That said, this 25-point reduction does not operate in a vacuum. Traders should be reviewing their volatility assumptions and stress points, particularly in instruments where correlation to Chinese equity indices is high. While the cost of leverage for real economy actors is now a touch lower, the output on pricing remains uneven unless accompanied by pickup in turnover or follow-through in physical cash movement.
Despite the narrow scope of relending itself, adjustments like these signal more, not less, involvement from central authorities. This dampens risk premium in selected strategies — especially short gamma structures or calendar spreads where exposure to institutional buying behaviour could spike.
Liquidity conditions may remain somewhat fragmented during the initial days after the cut takes effect. We would be reviewing skew behaviour in structured products and longer-dated index options, as pricing will likely adjust to potential buying activity from corporates and credit-eligible entities rather than broader retail flows.
In effect, this is a rate cut aimed not at households or broad consumption, but rather at steering behaviour within capital markets. Accordingly, one should not expect the usual knock-on effects seen with base policy reductions — swap curve flattening could even be misleading in this case. Focus should instead rest on positioning shifts among players most responsive to central directives.
