2026 Monetary Policy New Direction: More Proactive and Effective in Enhancing Efficiency

Source: Shanghai Securities News Author: Zhang Qiongsi Fan Zimeng

This year’s Government Work Report proposes to continue implementing a moderately easing monetary policy. From the structural monetary policy tools “appropriately increasing scale and improving implementation methods” to “standardizing credit market operations and reducing financing intermediary costs,” the report introduces many new ideas and changes in monetary policy deployment. Recently, several national two-session delegates and committee members told Shanghai Securities News that this year, monetary policy will be more proactive and focus on improving effectiveness, injecting financial momentum into high-quality economic development.

Emphasizing Flexibility and Efficiency, Monetary Policy Focuses on Effectiveness

“By 2026, monetary policy will be more proactive,” said Wei Gejun, member of the National Committee of the Chinese People’s Political Consultative Conference and counselor at the People’s Bank of China. He noted that the Government Work Report’s deployment of monetary policy reflects policy continuity and consistency, as well as a focus on strengthening macroeconomic governance.

From “timely reserve requirement ratio (RRR) cuts and interest rate reductions” to “flexibly and efficiently using various policy tools such as RRR cuts and interest rate reductions,” the new wording in this year’s report highlights a shift in monetary policy direction.

Yang Chengzhang, chief economist at Shenwan Hongyuan Research and member of the National Committee of the Chinese People’s Political Consultative Conference, said, “‘Flexibility and efficiency’ means future monetary policy will pay more attention to effectiveness rather than simply expanding volume.”

“Future monetary policy operations will be more about timely decision-making,” said Liu Shangxi, vice president of the Chinese Macroeconomics Society and member of the National Committee. He believes that tools like RRR cuts and interest rate reductions will be used flexibly and moderately based on economic conditions and international environment changes.

Due to the overlapping effects of the Lunar New Year holiday shift and the recovery of consumer demand, CPI rose 1.3% year-on-year in February, a significant rebound. The Government Work Report emphasizes that promoting stable economic growth and reasonable price increases are important considerations for monetary policy. Liu Shangxi believes this indicates that monetary policy should maintain moderate overall expansion to ensure ample liquidity and support a gentle rise in prices.

Monetary policy will target key areas with precise measures, and structural monetary policy tools are expected to increase in scale and improve implementation. The report explicitly states, “Optimize and innovate structural monetary policy tools” and “Guide financial institutions to strengthen support for expanding domestic demand, technological innovation, and small and micro enterprises.”

Liu Shangxi said, “Structural monetary policy tools can provide more targeted financial support for areas like technological innovation.”

The report also for the first time proposed to “reduce financing intermediary costs” to promote low-cost social financing.

“Compared to the past, China’s overall social financing costs have significantly decreased, but the financial system still needs to better align with enterprise needs,” Yang Chengzhang said. For example, some companies can only passively accept standardized financial products, leading to less smooth connections between finance and the real economy, causing friction or transformation costs, which to some extent affect the efficiency of financial services to the real economy.

Wei Gejun believes that this year’s monetary policy has four key areas to watch: prioritizing stable economic growth and reasonable price increases; strengthening coordination between monetary and fiscal policies; deepening reforms of monetary adjustment and transmission mechanisms; and paying more attention to expectation management.

“Effective monetary policy depends on coordination with fiscal and industrial policies. From a systemic perspective, macro policy tools need to be better coordinated and linked to form synergy, achieving a policy effect where ‘1+1>2’,” Liu Shangxi said.

Focusing on Key Areas, Structural Tools Targeted Precision Drip Irrigation

Inside a semiconductor manufacturing workshop in Suzhou, newly upgraded key production equipment is helping the company improve packaging technology and actual capacity. A company official said that the Bank of China has provided over 150 million yuan in equipment renewal loans, combined with interest subsidy policies, saving the company 3 million yuan annually in financing costs.

Earlier this year, the People’s Bank of China introduced a series of monetary and financial policies: structural “interest rate cuts,” establishment of re-lending for private enterprises, increased re-lending quotas for technological innovation and technological transformation… focusing precisely on key areas of economic development.

Regarding 2026 monetary policy, Pan Gongsheng, governor of the People’s Bank of China, said at the Fourth Session of the 14th National People’s Congress that the central bank will continue to implement a moderately easing monetary policy.

Pan Gongsheng stated: “In terms of quantity, use a comprehensive set of short-, medium-, and long-term monetary policy tools to keep market liquidity ample; in terms of interest rates, guide and regulate interest rate levels to promote low social financing costs; structurally, focus on supporting expanding domestic demand, technological innovation, and small and micro enterprises.”

By 2026, the moderately easing monetary policy will better align with local economic realities, smoothing the “last mile” of policy transmission to better benefit micro entities.

“At the local level, smooth monetary policy transmission depends on transforming macro policies into tangible ‘sense of gain’ for micro entities,” Wei Gejun said. He suggested that this can be achieved through active policy interpretation and publicity, guiding financial institutions to enhance endogenous motivation for policy transmission, and continuously optimizing financial services.

Currently, various regions are actively implementing detailed monetary policies. On February 12, the People’s Bank of China Hubei Branch issued the first batch of 2.25 billion yuan in re-lending funds for private enterprises, which will effectively leverage six commercial banks to issue 12.55 billion yuan in related loans to private enterprises in the first quarter.

Ma Jun, director of the Hubei Branch of the People’s Bank of China and deputy to the National People’s Congress, said that by 2026, Hubei will focus on its “strong science and technology province,” “water economy,” and “tea economy” industries, using re-lending and fiscal interest subsidies to implement a “combination punch” of policies to fully support high-quality economic development in Hubei.

“By 2026, we aim to push policy implementation with greater力度, continuously improve service quality for high-quality development,” said Yan Baoyu, head of the Sichuan Branch of the People’s Bank of China and also a deputy to the National People’s Congress. He added that efforts will continue to support the Chengdu-Chongqing economic circle and promote the construction of the Western Land-Sea New Corridor.

(Edited by: Wen Jing)