Central Bank: Implement a moderately loose monetary policy effectively

Executive Report on China's Monetary Policy for Q1 2025

Content Summary

Since the beginning of this year, under the strong leadership of the Party Central Committee with Comrade Xi Jinping at its core, various macro policies have been implemented in a coordinated manner, and the economy has shown a positive trend. In Q1, the gross domestic product (GDP) increased by 5.4% YoY. Social confidence has continued to improve, and high-quality development has been steadily advancing, achieving a good start for the national economy. The People's Bank of China (PBOC), guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, has conscientiously implemented the decisions and deployments of the Party Central Committee and the State Council. It has implemented a moderately accommodative monetary policy, strengthened counter-cyclical adjustments, and created a suitable monetary and financial environment for the sustained economic rebound and improvement.

1. Maintaining Reasonable Growth in Money and Credit. The PBOC has utilized a combination of tools, including reserve requirement ratios, open market operations, medium-term lending facilities (MLFs), and re-lending and rediscounting, to maintain ample liquidity. It has guided financial institutions to fully meet the effective credit demands of the real economy, improve the efficiency of capital utilization, and enhance the quality and efficiency of services to the real economy.2. Promoting a Decline in Comprehensive Social Financing Costs. The PBOC has improved the market-oriented interest rate regulation framework, lowered policy interest rates and interest rates for structural monetary policy tools, strengthened the implementation of interest rate policies, and driven down deposit and lending interest rates.3. Guiding the Adjustment and Optimization of Credit Structure. The PBOC has promoted the optimization of re-lending for technological innovation and technological transformation, made good use of two capital market support tools, implemented various existing structural monetary policy tools, created new policy tools, and continued to make progress in the "Five Major Articles" of finance.4. Maintaining Basic Stability of the Exchange Rate. The PBOC has adhered to the principle that the market plays a decisive role in exchange rate formation, leveraged the regulatory functions of the exchange rate on the macro economy and international payments, implemented comprehensive measures, maintained stable expectations, and kept the RMB exchange rate basically stable amid complex situations.5. Strengthening Risk Prevention and Resolution. The PBOC has prudently and orderly resolved financial risks in key areas and continuously improved the financial risk monitoring, assessment, and early warning systems.

The counter-cyclical adjustment effects of monetary policy have been relatively evident. The aggregate amount of finance has grown steadily. At the end of March, the outstanding social financing stock and broad money (M2) increased by 8.4% and 7.0% YoY, respectively, and the balance of RMB loans reached 265.4 trillion yuan. Social financing costs have remained at historically low levels. In March, the interest rates on newly issued corporate loans and personal housing loans decreased by approximately 50 and 60 basis points YoY, respectively. The credit structure has continued to optimize. At the end of March, loans to specialized and sophisticated small and medium-sized enterprises and inclusive micro and small enterprise loans increased by 15.1% and 12.2% YoY, respectively, continuing to outpace the growth rate of all loans.The RMB exchange rate remained basically stable at a reasonable and balanced level. The central parity rate of the RMB against the US dollar was 7.1782 yuan at the end of March, basically flat compared with that at the end of the previous year.

Currently, the impact of external shocks is intensifying, with insufficient momentum for global economic growth, rising trade protectionism, and persistent geopolitical conflicts. The foundation for China's sustained economic rebound and improvement needs further consolidation. However, it should also be noted that China possesses numerous advantages, including a vast market, a complete industrial system, and abundant human resources. The fundamental trend of long-term economic improvement remains unchanged. We must strengthen our confidence in development and respond to the uncertainties of the external environment with the certainty of high-quality development. In the next phase, the People's Bank of China (PBOC) will adhere to the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, comprehensively implement the spirit of the Third Plenary Session of the 20th CPC Central Committee, the Central Economic Work Conference, and the Two Sessions, uphold the general principle of pursuing progress while ensuring stability, fully, accurately, and comprehensively implement the new development philosophy, unwaveringly follow the path of financial development with Chinese characteristics, further deepen financial reforms and high-level opening-up to the outside world, continuously promote high-quality financial development and the building of a financial powerhouse, accelerate the improvement of the central bank system, and further refine the monetary policy framework. We will balance short-term and long-term goals, steady growth and risk prevention, internal and external equilibrium, as well as supporting the real economy and maintaining the health of the banking system. We will enhance the foresight, pertinence, and effectiveness of macroeconomic regulation, strengthen the coordination and cooperation of macroeconomic policies, expand domestic demand, stabilize expectations, stimulate vitality, and make every effort to consolidate the fundamentals of economic development and social stability.

We will implement an appropriately accommodative monetary policy. Based on the domestic and international economic and financial situations, as well as the operation of financial markets, we will flexibly adjust the intensity and pace of policy implementation, maintain ample liquidity, and ensure that the growth of aggregate social financing and money supply aligns with the expected targets for economic growth and the overall price level. We will prioritize promoting a reasonable rebound in prices as a key consideration in monetary policy formulation, and strive to keep prices at a reasonable level. We will unclog the monetary policy transmission mechanism, further refine the interest rate regulation framework, continuously strengthen the implementation and supervision of interest rate policies, reduce banks' liability costs, and drive down the overall social financing costs. We will leverage the dual functions of monetary policy tools in terms of both aggregate and structural aspects, adhere to focusing on key areas, maintaining reasonable moderation, and advancing and retreating as appropriate, guiding financial institutions to increase support for technology finance, green finance, inclusive finance for small and micro enterprises, consumption expansion, and stable foreign trade. We will uphold a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies for adjustment, and adhere to the decisive role of the market in exchange rate formation. We will enhance the resilience of the foreign exchange market, stabilize market expectations, resolutely correct procyclical behaviors in the market, dispose of behaviors that disrupt market order, and resolutely guard against the risk of exchange rate overshooting, thereby maintaining the RMB exchange rate basically stable at a reasonable and balanced level.We will explore and expand the macroprudential and financial stability functions of the central bank to maintain the stability of the financial market and resolutely uphold the bottom line of preventing systemic financial risks.

Click to view: 》China's Monetary Policy Implementation Report for Q1 2025