PBOC: Timely Plan Practical Incremental Policies and Step Up Counter-Cyclical Adjustment

Since the beginning of this year, under the strong leadership of the Party Central Committee, China's economy has shown a development momentum of shifting to new growth drivers and optimizing structure. In the first half of the year, GDP grew by 4.7% year on year. The People's Bank of China (PBOC) has adhered to Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as guidance, resolutely implemented the decisions and deployments of the Party Central Committee and the State Council, continued to implement a moderately loose monetary policy, and given play to the integrated effect of existing and incremental policies to create an appropriate monetary and financial environment for consolidating the steady and positive economic trend.

First, maintain ample liquidity in the banking system and reasonable growth in financial aggregates. The PBOC has comprehensively used multiple monetary policy tools including reverse repos, medium-term lending facility, and government bond trading operations to maintain ample liquidity. It improved the short-end interest rate regulation mechanism, added overnight reverse repo operations in open market operations, and narrowed the temporary repo/reverse repo corridor width from 70 basis points to 50 basis points, enhancing the precision and effectiveness of money market interest rate regulation. It created an offshore central bank repo facility to facilitate RMB liquidity management and RMB bond asset allocation for overseas central bank-like institutions. It guided financial institutions to extend credit in a balanced manner and strongly supported effective real-economy credit demand.

Second, keep aggregate social financing costs low. It cut the interest rates of structural monetary policy tools by 25 basis points, continued to advance the work of explicitly disclosing the comprehensive financing costs of corporate loans, and reduced intermediate financing fees. It better leveraged the role of the market-oriented interest rate pricing self-discipline mechanism, maintained fair market competition order, and enhanced banks' autonomous and rational pricing capability.

Third, encourage and guide financial institutions to increase support for key areas. It introduced and implemented a series of structural monetary policy measures, expanded the scale and coverage of tools, improved policy elements, merged the quotas for agricultural/small business re-lending and rediscounting, increased the quotas for agricultural/small business re-lending as well as science and technology innovation and technical transformation re-lending, set up a separate 1 trillion yuan private enterprise re-lending, and established a combined science and technology innovation and private enterprise bond risk-sharing tool to further help optimize the economic structure.

Fourth, keep the RMB exchange rate basically stable. The PBOC insists that market supply and demand play a decisive role in exchange rate formation and gives play to the exchange rate's adjustment function for the macroeconomy and the balance of payments. Through comprehensive measures, it keeps the RMB exchange rate basically stable at an equilibrium level consistent with economic fundamentals. It encourages financial institutions to improve exchange rate risk-hedging services, conducts offshore RMB FX trading in the Shanghai Free Trade Zone, and promotes integration between the onshore and offshore RMB markets.

Fifth, steadily and orderly advance risk disposal in key areas. It steadily advances resolution of financial risks at key institutions and in key regions. The interbank market data reporting warehouse was officially launched, enhancing the through-the-cycle monitoring capability of financial markets.

The effects of the moderately loose monetary policy have continued to emerge, social financing conditions have remained relatively loose, and the quality and efficiency of financial services to the real economy have steadily improved. By end-June, outstanding aggregate financing to the real economy and broad money supply (M2) grew by 7.4% and 8.0% year on year respectively. Banking system liquidity has remained ample, with the overnight DR001 money market rate averaging 1.31% in the first six months, operating steadily overall. Aggregate social financing costs have remained low, with the newly issued corporate loan rate in June at around 3.0%, about 20 basis points lower than the same period last year, and the newly issued individual housing loan rate at around 3.1%, basically flat year on year.

Credit allocation has continued to optimize. By end-June, technology loans, green loans, inclusive finance loans, elderly-care industry loans, and digital economy industry loans grew by 12.6%, 14.5%, 7.8%, 23.5%, and 15.1% year on year respectively, continuously outpacing overall loan growth. Foreign exchange market supply and demand have been basically stable, and the RMB exchange rate has remained basically stable at a reasonable equilibrium level. By end-June, the RMB closed at 6.7852 against the U.S. dollar, appreciating 3% from end-2025, while the CFETS RMB exchange rate index stood at 102.59, up 4.7% from end-2025.

Looking ahead, the PBOC will continue to implement a moderately loose monetary policy well, enhance policy forward-looking, flexibility and targeting, grasp the intensity, pace and timing of policy implementation according to domestic and international economic and financial conditions and financial market operations, strengthen coordination and cooperation with fiscal policy, support stable economic growth, high-quality development, and stable financial market operations. It will comprehensively use and timely adjust monetary policy tools, maintain ample liquidity and relatively loose social financing conditions, guide the growth of aggregate financing to the real economy and money supply to match economic growth and the expected target for the overall price level, and push forward reform and improvement of the monetary policy operational framework in a smooth and orderly manner.