Central Bank Governor Pan Gongsheng's Latest Statement: Continue Implementing Moderately Loose Monetary Policy Expert Interpretation Incoming⋯⋯

Everyday Reporter | Zhang Shoulin
Editor | Wei Wenyí

On March 22, the People’s Bank of China (hereinafter referred to as “the PBOC”) Governor Pan Gongsheng delivered a keynote speech at the “2026 China Development High-Level Forum,” stating that the country will continue to implement a moderately loose monetary policy. The PBOC will comprehensively use various monetary policy tools such as reserve requirement ratios, policy interest rates, and open market operations to maintain ample liquidity.

In response, ICBC International Chief Economist Cheng Shi said that current money market interest rates are already at historic lows. China’s economy is at a critical stage of transitioning from old to new growth drivers. As a result, the focus of monetary policy operations has also undergone profound changes, shifting from aggregate regulation to a coordinated effort of aggregate and structural tools. On one hand, tools like reserve requirement cuts and interest rate reductions remain key to stabilizing total demand and price expectations. On the other hand, structural monetary policies have become important levers to guide financial resources toward positive externality sectors such as technological innovation and green transformation.

Sheng Songcheng, Director of the China Chief Economist Forum Research Institute and Senior Academic Advisor at the China Europe International Business School (CEIBS) Lujiazui Institute of International Finance, pointed out that monetary policy and fiscal policy are the two core tools of China’s macroeconomic regulation. Coordinating the promotion of these two policies to work together and implementing targeted measures will help ensure a good start for the 14th Five-Year Plan.

Pan Gongsheng: The PBOC Will Maintain a Supportive Monetary Policy Stance

Pan Gongsheng emphasized that the PBOC will adhere to a supportive monetary policy stance to create a favorable monetary and financial environment for stable economic growth, high-quality development, and smooth financial market operation.

“We will continue to implement a moderately loose monetary policy. Currently, China’s social financing conditions are relaxed, and the total financial volume is growing reasonably. We will balance short-term and long-term considerations, support real economic growth while maintaining the health of the financial system, and coordinate internal and external balance. We will use a combination of tools such as reserve requirement ratios, policy interest rates, and open market operations to ensure ample liquidity,” Pan Gongsheng stated.

Cheng Shi analyzed that as a macro regulation tool centered on price signals, aggregate policies can simultaneously influence bank funding supply and micro-entity financing demand, making them more suitable for stabilizing inflation expectations and restoring total demand. From an operational perspective, the structural adjustments at the beginning of the year suggest that monetary easing in 2026 is more likely to be moderate and phased.

Regarding tool application, Cheng Shi believes that quantity-based tools may take precedence, such as reserve requirement cuts to maintain reasonable liquidity and create an environment for structural policies to be effective. Currently, the average reserve requirement ratio for financial institutions is about 6.3%, with roughly 50 basis points (bps) room for further reduction. Price-based tools are used more cautiously; although there is room for interest rate cuts, they are more likely to be implemented gradually with small adjustments, evaluated dynamically based on policy transmission effects. The 7-day reverse repo rate is already at a historic low of 1.4%, but there is still room for a moderate adjustment of 10-20 bps. At the central bank level, market expectations of a mild renminbi appreciation provide some space for liquidity injection. Banks have shown signs of stabilizing net interest margins since 2025, maintaining around 1.42% for two consecutive quarters, and in 2026, a large volume of three- and five-year deposit maturities and re-pricing will provide room for rate adjustments. On the micro level, the new round of “Two New” policies in 2026 continues to support expanding domestic demand, including equipment updates for commercial complexes and shopping centers, with support for key consumer goods further increasing the “subsidy rate,” which helps boost confidence among enterprises and residents, thereby improving the transmission efficiency of monetary policy.

From a structural monetary policy perspective, Cheng Shi pointed out that among the three main types of monetary policy tools, the short-term interest rate anchored by open market operations is generally regarded as the policy rate. The PBOC uses the 7-day reverse repo rate as the short-term policy rate to provide short-term liquidity to commercial banks. However, from an operational and term structure perspective, the execution rate of re-lending also belongs to the policy rate directly set by the PBOC, transmitted through commercial banks, and is associated with longer-term and specific-use funds. According to traditional interest rate transmission mechanisms, the PBOC influences market expectations by adjusting short-term policy rates, which then propagate through the term structure to medium- and long-term interest rates, ultimately affecting financing costs for the real economy. Therefore, in the traditional framework, the policy rate serves both as a macro regulation signal and as a direct tool to influence the cost of real entity financing. However, with overall interest rates declining, transmission elasticity weakening, and structural economic contradictions intensifying, a single interest rate tool struggles to achieve multiple objectives simultaneously. Recent policy practices show that short-term policy rates mainly serve to anchor the interest rate center and stabilize market expectations, while re-lending rates are used for targeted reductions in financing costs in specific sectors.

Sheng Songcheng: Coordinating the Promotion of Monetary and Fiscal Policy Synergy

Sheng Songcheng emphasized that monetary policy and fiscal policy are the two core tools of China’s macroeconomic regulation. Coordinating their efforts and implementing precise measures will help ensure a good start for the 14th Five-Year Plan.

He explained that through tool innovation and mechanism coordination, fiscal and monetary policies show strong consistency and alignment in target objects, implementation timing, and rhythm.

In terms of policy consistency, Sheng Songcheng pointed out that in the field of technological innovation, the PBOC has introduced re-lending policies for technological innovation and technological transformation, offering funds to financial institutions at preferential rates to guide credit support toward these sectors. Simultaneously, the Ministry of Finance has launched equipment update loan interest subsidy policies to further reduce corporate financing costs.

To boost consumption, the PBOC has established service consumption and elderly care re-lending programs to encourage financial institutions to increase credit in key consumption areas. Fiscal policies have introduced measures such as “double interest subsidies” (interest subsidies for service industry business loans and personal consumption loans), child-rearing subsidies, consumption vouchers, and promotion of “trade-in” schemes for durable goods, directly improving cash flow for residents and enterprises.

Regarding the complementarity of innovative tools, Sheng Songcheng noted that structural monetary tools (such as various re-lending programs) are essentially preferential-rate loans provided by the PBOC to commercial banks, representing a form of debt instrument that guides banks to allocate funds to specific sectors. These tools mainly target the liabilities side of the real economy, with clear terms and repayment requirements, emphasizing principal safety and risk control, focusing on reducing corporate financing costs and improving short-term cash flow, but are less suited for long-term capital investment and risk mitigation.

In contrast, fiscal policy tools are more akin to “equity” attributes. They involve fiscal injections to supplement the capital of the real economy or financial institutions, creating long-term capital reserves. For example, injecting capital into commercial banks through special treasury bonds to ease capital adequacy constraints and enhance lending capacity; supporting new policy financial instruments with fiscal funds; or issuing special bonds to provide capital for major projects, ensuring strategic implementation. These funds are not aimed at short-term returns but are capable of bearing risks and losses, aligning with long-term structural adjustments.

Sheng Songcheng concluded that monetary policy, through medium- and long-term liquidity injections (such as reserve requirement cuts) and policy rate adjustments, works in tandem with fiscal policy to ensure the smooth issuance of government bonds and stabilize financing costs, thereby expanding total demand. Through innovative tools focusing on technological innovation, consumption, and weak links in the economy, and leveraging the complementary mechanisms of “debt + equity,” they precisely promote structural adjustment and development.

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