PBOC doubles down on easing to lift 7.4% credit growth

The People's Bank of China reaffirmed its moderately loose monetary stance at its H2 work conference, pledging to keep liquidity ample and financing costs low as it targets a 7.4 percent expansion in social financing.

"We will continue to implement a moderately loose monetary policy, using tools such as reserve requirement ratio and interest rate cuts to maintain ample liquidity," the central bank said in a statement released after the Aug. 1 meeting, chaired by Governor Pan Gongsheng.

June data showed aggregate social financing grew 7.4 percent from a year earlier and broad M2 money supply rose 8.0 percent. Loans tied to the central bank's "five articles" framework — covering technology, green, inclusive, pension and digital finance — climbed 11 percent, outpacing overall credit. Cumulative issuance of sci-tech innovation bonds on the bond market's "tech board" topped 2.8 trillion yuan, while panda bond issuance exceeded 160 billion yuan in the first half.

The stance matters because it shows Beijing is prioritizing growth over financial discipline in the first year of its 15th Five-Year Plan, with the PBOC promising to "timely plan pragmatic incremental policies" and step up counter-cyclical adjustment. That points to further reserve requirement ratio cuts and lower lending rates in coming quarters, supporting equities and property-linked assets while keeping the yuan under pressure.

The conference laid out eight tasks for the second half, with monetary easing at the top. The PBOC said it will use a full range of policy tools including reverse repos, the medium-term lending facility and government bond trading to provide short-, medium- and long-term liquidity. It also added an overnight reverse repo operation and narrowed the band for temporary overnight repo rates, tightening its grip on the short end of the curve.

The central bank's pledge to keep "overall social financing costs at a low level" extends a push that has already cut structural tool rates and added dedicated relending facilities for private enterprises. It merged a risk-sharing tool for sci-tech innovation and private enterprise bonds, and expanded the scope of service-consumption, pension and carbon-emission reduction facilities.

Easing Bias Deepens as Credit Demand Softens

The renewed easing bias comes as credit demand remains uneven. While aggregate financing grew 7.4 percent in June, the pace still trails the double-digit expansion seen in earlier easing cycles. The last time the PBOC leaned this hard on domestic demand was in 2024, when it cut the reserve requirement ratio twice within the year, moves that helped lift the CSI 300 by roughly 15 percent over the following quarter.

For global investors, the transmission runs through several channels. Lower policy rates should support A-shares and Hong Kong-listed consumer and technology names, while the PBOC's pledge to keep the yuan "basically stable at a reasonable and balanced level" suggests it will tolerate gradual depreciation rather than sharp moves. Offshore yuan (CNH) and onshore yuan (CNY) both face pressure from the widening rate differential with the U.S., even as the central bank said it will maintain exchange-rate flexibility.

Risk Resolution and Opening Remain Priorities

Beyond easing, the PBOC reiterated its push to resolve local government financing platform debt and support capital markets through two dedicated monetary policy tools. It also pledged to deepen opening, supporting more foreign institutions to issue panda bonds and expanding the cross-border yuan payment system, while backing Shanghai and Hong Kong as international financial centers.

The next test comes with the monthly loan prime rate decision, where markets will watch whether the PBOC follows through on further cuts. With the 15th Five-Year Plan underway, the central bank's message is clear: policy support will stay loose until domestic demand and prices show a durable rebound.

This article is for informational purposes only and does not constitute investment advice.