PBoC keeps rate at 1.25% and injects 600 bln yuan: China ends Q2 on life support

The Chinese central bank floods markets with liquidity at the end of the quarter, accentuating monetary divergence with the Fed—and the risk of competitive devaluation of the yuan.

The Fact

The People's Bank of China (PBoC) maintained its overnight repo rate at 1.25% and injected 600 billion yuan (≈$83bn) at the end of the quarter on June 30, 2026 (Economic Times). Simultaneously, the yuan stabilized following the release of Chinese manufacturing PMIs, while the yen hit a 40-year low against the dollar (160-161 range) under pressure from fears of intervention by the Japanese Ministry of Finance. The PBoC deployed its new overnight reverse repo tool to manage end-of-Q2 liquidity amid weakened growth.

Our Analysis

This massive injection confirms the PBoC's accommodative stance in response to disappointing domestic demand—recall: household consumption accounts for only ~38% of China's GDP (vs ~68% in the United States), a persistent structural imbalance analyzed by Stephen Roach (Project Syndicate, 26/06). The Fed (~5.25-5.50%, potential Warsh hike H2) / PBoC (~1.25%) divergence now stands at ~400 bps—a record gap that continues to pressure the yuan. If Q3 PMIs disappoint, the temptation for a competitive devaluation of the yuan grows, with deflationary effects exported to Europe and emerging markets.

To Watch