In a bold move to stimulate its faltering economy, China's central bank has implemented a series of monetary policy adjustments. The People's Bank of China (PBoC) announced a reduction in the one-year medium-term lending facility rate from 2.3% to 2.0%, while simultaneously injecting 300 billion yuan of liquidity into the financial system.

This decision, unveiled on Wednesday, follows PBoC Governor Pan Gongsheng's earlier announcement of a cut in the seven-day reverse repo rate—China's primary policy rate—from 1.7% to 1.5%. These coordinated actions underscore Beijing's commitment to addressing economic challenges through monetary easing which of course will have an impact on inflation and asset prices.

However, financial experts at UBS caution that monetary policy alone may not suffice. While acknowledging the positive shift towards a more accommodative stance, UBS analysts emphasize the need for substantial fiscal support to complement these measures. They note that current stimuli fall short of previous large-scale economic packages that triggered sustained market rallies.

UBS suggests that breaking the ongoing deflationary debt cycle may require a budget revision in October, potentially introducing additional fiscal incentives. This could be particularly likely if third-quarter GDP growth significantly underperforms the 5% target.