The recently held Political Bureau meeting of the Communist Party of China Central Committee made new arrangements for monetary policy, and the People's Bank of China's 2026 second half work conference further refined the implementation requirements and released clear policy signals. Experts say that in promoting the sustained development of the economy towards a new and better direction, monetary policy needs to balance multiple objectives. At present, reserve requirement ratio cuts and interest rate cuts are still within the policy toolbox, and more attention will be paid to making decisive decisions and grasping the timing and intensity of implementation; Structural tools will continue to be strengthened, focusing on key areas such as technological innovation, new quality productivity, and small and medium-sized enterprises to fill gaps. At the same time, fiscal and financial policies to promote domestic demand will continue to be optimized, creating a suitable monetary and financial environment for sustained economic recovery and improvement.
Total control camera selection
The Politburo meeting of the Central Committee of the Communist Party of China proposed to comprehensively utilize and adjust monetary policy tools in a timely manner. The work conference of the People's Bank of China in the second half of 2026 clearly stated that it is necessary to maintain sufficient liquidity, guide financial institutions to enhance the balance of credit supply, and ensure that the growth of social financing scale and money supply matches the expected goals of economic growth and overall price level.
It is widely believed in the industry that reserve requirement ratio cuts and interest rate cuts are still optional for monetary policy operations this year, but the implementation of policies will focus on making discretionary decisions under the balance of multiple objectives. Zhang Wenlang, Chief Macroeconomic Analyst of the Research Department of China International Capital Corporation (CICC), analyzed that reserve requirement ratio cuts can complement government bond issuance and supplement the medium - to long-term liquidity of the banking system, while interest rate cuts can help further reduce the financing costs of the real economy. However, the current comprehensive financing costs of society are already at a historically low level. Therefore, the reduction of reserve requirement ratio and interest rate also requires the coordination of multiple factors such as bank net interest margin, RMB exchange rate, and bond market operation.
The comprehensive use and timely adjustment of monetary policy tools "reflects the refinement of the expression of monetary policy, leaving room for flexible operations in the future. Zhang Jiqiang, Director of Huatai Securities Research Institute and Chief Analyst of Fixed Income, stated that since mid-2025, monetary policy has clearly shifted towards discretionary measures. Since the beginning of this year, the pace of changes in the funding situation has basically followed the flexible adjustment of fundamentals, exchange rates, and other changes. Therefore, reserve requirement ratio cuts and interest rate cuts are still in the toolbox, but the timing of implementation may be more cautious.
Against the backdrop of overall stability in the fiscal policy framework, this statement also sends a positive signal that there is still room for further development in monetary policy. Yuan Haixia, President of China Chengxin International Research Institute, believes that the third quarter will be an important window period for monetary policy implementation. Considering that the issuance of government bonds reached its peak in the third quarter, in order to maintain a reasonable and sufficient liquidity, the People's Bank of China is expected to flexibly use various tools such as reserve ratio reduction, open market operation, and treasury bond trading to strengthen liquidity management and calm the financial disturbance caused by the centralized issuance of government bonds.
Zou Lan, Vice President of the People's Bank of China, said at the press conference held by the National News Office a few days ago that in terms of quantity, in practice, according to the needs of liquidity management, we will properly select and reasonably match such tools as deposit reserve, reverse repurchase, medium-term lending facilities, treasury bond trading, etc. to maintain sufficient liquidity and guide the growth of social financing scale and money supply to match the expected goals of economic growth and overall price level. In terms of interest rates, we will guide and regulate the level of interest rates according to the macroeconomic operation, price trends, and the needs of macroeconomic regulation, and promote the low operation of social comprehensive financing costs.
Structural tools target and exert force
In January of this year, the People's Bank of China launched a series of structural monetary policy measures to strengthen support for key areas and weak links in economic development through reducing interest rates, increasing quotas, expanding scope, and other means. In the second half of the year, experts indicate that the role of structural monetary policy tools will be further highlighted, and the effectiveness of various tools is expected to be fully released.
Subsequent structural tools may continue the direction of "increasing quantity and reducing price". According to Luo Zhiheng, Chief Economist of Yuekai Securities, on the one hand, it is possible to expand the application scenarios of service consumption, pension refinancing, and supporting agriculture and small businesses refinancing; On the other hand, policy financial instruments such as PSL (Mortgage Supplementary Loan) can be created or restarted for major projects during the 15th Five Year Plan period and the construction of the "Six Networks"; Optimize the design and management of existing refinancing tools around new quality productivity fields such as artificial intelligence, commercial aerospace, and low altitude economy.
In the next stage, structural monetary policy tools will continue to play a good role in incentivizing and guiding financial institutions to optimize their credit structure in a market-oriented manner. Wang Yifeng, Chief Analyst of Financial Industry at Everbright Securities, stated that structural tools have room for expansion and optimization in areas such as technology finance, technological transformation, and further support for the development of the private economy. At the same time, it is necessary to strengthen the coordination between monetary policy and fiscal policy, and ensure smooth transmission of monetary policy.
The People's Bank of China will continue to play a good role in other monetary and financial policies, such as structural monetary policy tools. "Zou Lan recently stated that on the one hand, we will implement a series of structural monetary policy measures introduced at the beginning of the year, continuously improve tool design and management, and if necessary, increase tool quotas and optimize policy elements according to market demand, and strengthen support for key areas such as expanding domestic demand, technological innovation, and small and medium-sized enterprises. On the other hand, guiding financial institutions to scientifically assess risks, implement classified policies, provide assistance and control, and improve the efficiency of fund utilization.
Deepen collaboration and amplify policy effectiveness
Focusing on policy coordination, the Politburo meeting of the CPC Central Committee proposed to optimize the implementation of fiscal and financial coordination policies to promote domestic demand. The work conference of the People's Bank of China in the second half of 2026 clearly stated the need to strengthen coordination with local finance and industry departments, and enhance the effectiveness of policy incentives.
This year, the central government has specially allocated 100 billion yuan to launch a package of six policies to promote domestic demand through fiscal and financial coordination, which is an important practice of the coordinated efforts of fiscal and monetary policies.
This synergy of fiscal and financial policies combines the leverage effect of fiscal funds with the liquidity support of monetary policy through a combination of policy based financial instruments, re lending interest subsidies, financing guarantees, and other policies, working together on both consumption and investment ends, "said Luo Zhiheng.
The Chief Economist of CITIC Securities clearly stated that the coordination between fiscal policy and monetary policy in the future will no longer be limited to the same direction, but will pursue efficient linkage in tool combination, implementation pace, and ultimate effect. The synergy between the two means that there will be more combination tools similar to "fiscal interest subsidies+central bank refinancing", which will be linked to the credit support of the government and the allocation of financial funds, more accurately and efficiently leverage social demand, and enhance the overall effectiveness of macroeconomic policies.
In the second half of the year, relevant departments are expected to continue optimizing based on the previous experience of the package of policies promoting domestic demand through fiscal and financial coordination, and jointly guide resources to gather in the fields of consumption and private investment, "said Wen Bin, Chief Economist of Minsheng Bank.