PBoC Pledges to Continue Moderately Loose Monetary Policy, Tightens Oversight on Policy Transmission Disruption

On May 11, the People's Bank of China (PBoC) released its First Quarter 2026 China Monetary Policy Implementation Report, summarizing Q1 2026 monetary policy execution, analyzing the current economic and financial situation, and clarifying the policy direction for the next phase.

On the current economic and financial situation, the Report stated that China's economy got off to a strong start, with effective demand gradually recovering, providing solid support for a reasonable recovery in prices.

This quarter's Report focused special columns on how to build a comprehensive macro-prudential management framework, emphasizing that the next phase will accelerate the construction of a fully comprehensive macro-prudential system. The Report also systematically introduced the characteristics and implications of China's balance of payments changes, concluding that China's balance of payments has the conditions to maintain basic equilibrium in the future.

Continuing Moderately Loose Monetary Policy

Regarding the main monetary policy direction for the next phase, the Report stated that the PBoC will enhance the forward-looking, flexible, and targeted nature of policy, calibrate the intensity, pace, and timing of policy implementation according to domestic and international economic and financial conditions, strengthen coordination between monetary and fiscal policy, smooth monetary policy transmission mechanisms, and promote stable economic growth and a reasonable recovery in prices. The PBoC will strengthen oversight of market behaviors that disrupt monetary policy transmission, maintaining orderly market competition.

Price Recovery Has Support

Since the start of this year, the external environment has grown increasingly complex. China's macroeconomic policy has been more proactive, with the national economy getting off to a strong start. The Report noted that effective demand is gradually recovering, supply-demand conditions in the real economy are continuously improving, providing solid support for a reasonable recovery in prices.

Recently, Middle East geopolitical events have pushed international oil prices and some commodity prices higher. The Report noted that this has had some positive impact on China's current price indicators, while warning that the effects of external imported inflation on domestic economic performance need close attention.

In Q1, the PBoC comprehensively employed multiple monetary policy tools, increased medium- and long-term liquidity injections in open market operations, and maintained ample liquidity in the banking system. The Report noted that the domestic financial market financing structure has undergone profound changes, with loans declining as a share and bonds rising sharply. Insufficient effective financing demand, combined with local government debt swaps and economic structural transformation, has had some dampening effect on credit growth.