China’s Central Bank Signals Sustained Support for Economy

China’s central bank has signalled that it will continue to provide policy support to the economy until 2026, with a focus on stabilising growth and supporting a gradual recovery in prices. This move is expected to lead to further easing of monetary policy, including cuts to the reserve requirement ratio (RRR) and interest rates.

Overview of Monetary Policy

The central bank has confirmed that it will maintain a "moderately loose" policy stance in 2026, with a commitment to keeping liquidity ample and financing costs low across the economy. This approach is designed to support stable economic growth and a reasonable recovery in prices.

Key Policy Initiatives

Some of the key policy initiatives that the central bank plans to implement in 2026 include:

• Further RRR and interest rate cuts to support economic growth
• A shift towards a more expectation-driven policy framework, which will rely on observation-based indicators rather than rigid quantitative targets
• Enhanced structural policy tools to support innovation, technological upgrading, and small and medium-sized enterprises
• A commitment to currency flexibility and RMB internationalisation, with a focus on supporting the development of Shanghai and Hong Kong as global financial hubs

Policy Framework Shift

The central bank plans to refine its policy framework to better reflect the changing structure of China’s financial system. In 2025, new bank loans accounted for less than half of total social financing, highlighting a shift towards market-based financing channels. The central bank will move away from rigid quantitative targets and towards a more observation-based and expectations-driven framework.

Structural Policy Tools

The central bank will also enhance its structural policy tools to support priority areas such as innovation, technological upgrading, and small and medium-sized enterprises. This will involve guiding banks to allocate credit more effectively towards these areas.

Currency and Internationalisation

The central bank has reaffirmed its commitment to a market-driven exchange rate, while guarding against excessive volatility in the yuan. Internationally, the central bank will continue to push for deeper financial opening, supporting RMB internationalisation and strengthening Shanghai and Hong Kong as global financial hubs.

Conclusion

In conclusion, China’s central bank has signalled that it will continue to provide policy support to the economy until 2026, with a focus on stabilising growth and supporting a gradual recovery in prices. The central bank’s commitment to a "moderately loose" policy stance and its plans to refine its policy framework and enhance its structural policy tools are expected to have a positive impact on the economy. As the central bank continues to navigate the challenges of the global economy, its sustained support for the economy is likely to be a key factor in driving growth and stability in the years to come.