PBOC: Intensify Monetary Policy Control, Cut RRR and Interest Rates at Appropriate Times, Study Creation of New Structural Monetary Policy Tools

According to the People's Bank of China (PBOC), the PBOC’s Monetary Policy Committee held its Q1 2025 regular meeting and suggested intensifying the strength of monetary policy regulation, enhancing the forward-looking, targeted, and effective nature of monetary policy control. Based on domestic and overseas economic and financial conditions and the operation of financial markets, it proposed opportune RRR cuts and interest rate cuts. Maintain ample liquidity, guide financial institutions to increase the intensity of monetary and credit issuance, ensuring that the growth in social financing scale and money supply aligns with the expected targets for economic growth and overall price levels. Strengthen the guidance of the central bank's policy rates, improve the market-based interest rate formation and transmission mechanism, leverage the role of the self-discipline mechanism for market interest rate pricing, and enhance the execution and supervision of interest rate policies. Promote a reduction in comprehensive social financing costs. Observe and assess the operation of the bond market from a macro-prudential perspective, paying attention to changes in long-term yields. Smooth the monetary policy transmission mechanism, improve the efficiency of fund utilization, and prevent idle circulation of funds. Enhance the resilience of the foreign exchange market, stabilize market expectations, strengthen market management, firmly correct pro-cyclical behaviors in the market, resolutely address actions disrupting market order, and firmly guard against the risk of excessive exchange rate fluctuations, maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level. Original text: The PBOC’s Monetary Policy Committee held its Q1 2025 (the 108th) regular meeting on March 18. The meeting noted that since the beginning of the year, the intensity of macroeconomic regulation has increased, with moderately loose monetary policy, enhanced counter-cyclical adjustments, and the integrated use of various monetary policy tools serving high-quality development of the real economy, creating a suitable monetary and financial environment for sustained economic recovery. The reform of the Loan Prime Rate (LPR) has been significantly effective, the mechanism for market-oriented adjustment of deposit rates has functioned effectively, the efficiency of monetary policy transmission has improved, and social financing costs are at historically low levels. The supply and demand in the foreign exchange market are basically balanced, the current account surplus is stable, foreign exchange reserves are adequate, the RMB exchange rate fluctuates bidirectionally with stabilized expectations, and remains basically stable at a reasonable and balanced level. Financial markets have operated stably overall. The meeting analyzed the domestic and overseas economic and financial situation, pointing out that the external environment is becoming more complex and severe, global economic growth momentum is weak, the performance of major economies is diverging, and the uncertainty regarding inflation trends and monetary policy adjustments is increasing. China's economic operation is generally stable, with steady progress in high-quality development, but still faces challenges such as insufficient domestic demand and numerous risk factors. A moderately loose monetary policy should be implemented, strengthening counter-cyclical adjustments, better leveraging the dual functions of total and structural aspects of monetary policy tools, and increasing coordination between monetary and fiscal policies, to maintain stable economic growth and keep prices at a reasonable level. The meeting discussed the main ideas for the next phase of monetary policy, suggesting an increase in the intensity of monetary policy regulation, enhancing the forward-looking, targeted, and effective nature of monetary policy control, and proposing opportune RRR cuts and interest rate cuts based on domestic and overseas economic and financial conditions and the operation of financial markets. Maintain ample liquidity, guide financial institutions to increase the intensity of monetary and credit issuance, ensuring that the growth in social financing scale and money supply aligns with the expected targets for economic growth and overall price levels. Strengthen the guidance of the central bank's policy rates, improve the market-based interest rate formation and transmission mechanism, leverage the role of the self-discipline mechanism for market interest rate pricing, and enhance the execution and supervision of interest rate policies. Promote a reduction in comprehensive social financing costs. Observe and assess the operation of the bond market from a macro-prudential perspective, paying attention to changes in long-term yields. Smooth the monetary policy transmission mechanism, improve the efficiency of fund utilization, and prevent idle circulation of funds. Enhance the resilience of the foreign exchange market, stabilize market expectations, strengthen market management, firmly correct pro-cyclical behaviors in the market, resolutely address actions disrupting market order, and firmly guard against the risk of excessive exchange rate fluctuations, maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level. The meeting also discussed work related to deepening the supply-side structural reform of finance, indicating the need to guide large banks to play a leading role in financial services for the real economy, promote small and medium-sized banks to focus on their primary responsibilities, support banks in replenishing capital, and jointly maintain the stable development of financial markets. Effectively implement all existing structural monetary policy tools, write the "five major articles" of finance well, and continue to increase support for major strategies, key areas, and weak links. Optimize the re-lending policy for scientific and technological innovation and technical renovation, study the creation of new structural monetary policy tools, focusing on supporting investment and financing in the field of scientific and technological innovation, promoting consumption, and stabilizing foreign trade. Make good use of swap facilities and stock repurchase and additional lending for securities, funds, and insurance companies, explore routine institutional arrangements, and maintain the stability of the capital market. Continuously provide financial services to support the development and expansion of the private economy, fully leverage the role of the coordination mechanism for supporting small and micro-enterprise financing, and further unblock the bottlenecks and choke points in financing for small and micro-enterprises. Focus on implementing the already introduced financial policies, increase efforts to revitalize existing commercial housing and land, promote the stabilization and recovery of the real estate market, improve the fundamental systems of real estate finance, and assist in building a new model for real estate development. Implement financial measures to promote the healthy development of the platform economy. Vigorously advance high-level two-way financial opening-up, and enhance the ability to manage the economy and finance and control risks under open conditions. The meeting emphasized the need to follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, fully implement the spirit of the Third Plenary Session of the 20th CPC Central Committee, the Central Economic Work Conference, and the Two Sessions, and in accordance with the decisions and plans of the CPC Central Committee and the State Council, firmly grasp the primary task of high-quality development, solidly advance the modernization of socialism with Chinese characteristics, and fully, accurately, and comprehensively implement the new development philosophy, accelerating the construction of a new development pattern. Combine the implementation of the strategy to expand domestic demand with deepening supply-side structural reforms, enhance the coordination of macro policies, effectively implement existing policies, and make greater efforts to ensure the implementation of incremental policies, focusing on getting off to a good start, expanding domestic demand, stabilizing expectations, and stimulating vitality, to promote sustained economic recovery and improvement. This meeting was chaired by Pan Gongsheng, Governor of the PBOC and Chairman of the Monetary Policy Committee. Members of the Monetary Policy Committee, including Xu Shouben, Li Chunlin, Liao Min, Xuan Changneng, Wu Qing, Kang Yi, Zhu Hexin, Gu Shu, Wang Yiming, Huang Yiping, and Huang Haizhou, attended the meeting. Li Yunze was absent due to official duties. Responsible officials from the PBOC branches in Inner Mongolia, Fujian, Henan, and Guizhou attended the meeting as observers.