Tailored easing favored over broad stimulus

China's central bank is likely to rely more heavily on targeted monetary policy tools rather than broad-based easing in the coming months, as policymakers sharpen their focus on improving the quality and efficiency of financial support while keeping an accommodative policy stance, analysts said.

Their comments came after the People's Bank of China said in its second-quarter monetary policy report released on Wednesday that it will "plan and introduce practical and effective incremental policy measures in a timely manner" to step up countercyclical adjustments and consolidate the country's steady economic recovery.

The report reiterated the central bank's commitment to maintaining ample liquidity, relatively accommodative financing conditions and low overall financing costs. But compared with its first-quarter report, it removed references to "guiding reasonable growth in aggregate financing", while stating that financial support has "shifted from placing greater emphasis on expanding scale to focusing more on quality and efficiency".

Pledging to strengthen financial support for domestic demand, technological innovation, as well as small, medium and micro-sized enterprises, the report provided no direct indication that broad-based tools such as across-the-board reserve requirement ratio or interest rate cuts are imminent.

Analysts said the wording points to greater reliance on structural monetary policy tools to channel credit toward priority sectors while reserving broad-based easing for periods of greater economic stress.

Zhong Linnan, senior macro analyst at GF Securities, said implementation of existing structural tools may accelerate in the third quarter. With the report newly calling for "strengthening financial support to boost and expand consumption", the PBOC may further coordinate with fiscal authorities through measures such as interest subsidies on consumer loans, while stepping up financial support for the elderly care sector.

In January, the PBOC lowered interest rates on structural monetary policy tools by 25 basis points, reducing the rates on targeted relending facilities — such as those supporting service consumption and elderly care, technological innovation and transformation, as well as private enterprises — to 1.25 percent.

Analysts said the report also suggests policymakers remain cautious about deploying broad-based easing amid a still challenging external environment.

The PBOC said the global backdrop has become more complicated due to weak economic growth, persistent geopolitical conflicts and trade frictions, ongoing supply shocks, imported inflationary pressures and rising global inflation.

It also noted that major central banks are adjusting their monetary policies, while expecting the current round of policy adjustments to remain relatively moderate given easing energy shocks.

On exchange rates, the PBOC retained its foreign exchange policy stance from the previous quarter, pledging to enhance the resilience of the foreign exchange market, stabilize market expectations, guard against exchange rate overshooting and keep the renminbi generally stable at a reasonable and equilibrium level.

BOC International said in a report that the unchanged wording suggests the central bank is broadly comfortable with the renminbi's recent rise and sees no immediate need to adjust its exchange-rate policy stance, while continuing to support the currency's evolution from a trade settlement currency toward a reserve currency.

The onshore renminbi traded at around 6.743 against the US dollar on Thursday afternoon, hovering near its strongest level since early 2023.

Beyond the near-term policy stance, the report also highlighted continued efforts to improve the monetary policy operating framework to better guide short-term money market rates around the policy rate.

Separately on Wednesday, the PBOC announced overnight reverse repo operations on Friday and Aug 17-19 to better match banks' short-term liquidity needs.

Wang Qing, chief macro analyst at Orient Golden Credit Rating International, said the combination of zero seven-day reverse repo operations from Tuesday to Thursday and the implementation of overnight reverse repos suggests the overnight facility could gradually become the central bank's core short-term liquidity management tool.

"This could pave the way for the overnight reverse repo rate to eventually replace the seven-day reverse repo rate as China's principal policy rate," Wang said.

Yu Guo contributed to this story.

zhoulanxv@chinadaily.com.cn