As part of its ongoing strategy, China’s central bank plans to closely monitor shifts in monetary policies by leading international central banks to maintain sufficient liquidity domestically and keep short-term money-market rates stable, according to its latest policy update.
The People’s Bank of China (PBOC) will strengthen its oversight of liquidity supply and demand within the banking system, as well as monitor developments in the money market. It will also utilize and adjust monetary policy tools as necessary to guide short-term interest rates to fluctuate gradually around policy rates.
The PBOC indicated that policy changes by major overseas central banks, such as the U.S. Federal Reserve and the European Central Bank, could influence the global economy and financial markets. This year, international crude oil and commodity prices experienced increases amid Middle East tensions, while inflation in key economies has generally risen due to external supply shocks.
Industry analysts emphasized that China should remain alert to uncertainties related to monetary policy adjustments abroad. It should calibrate the strength, pace, and timing of its own policy responses based on both domestic and international economic conditions, as well as financial market developments.
International Policy Adjustments
Experts noted that policy changes by major central banks often have ripple effects on global financial markets. Given China’s deep integration into the global economy and its efforts to develop a dual circulation model—focused both on domestic and international markets—it is crucial to stay vigilant regarding external monetary policy shifts.
However, the current phase of monetary policy adjustments by key central banks appears to be relatively modest, the PBOC report highlighted.
The report points out that the recent energy shocks are easing, so even if major economies’ central banks decide to raise interest rates, these increases are unlikely to be large. Furthermore, monetary policy in developed countries was already somewhat restrictive prior to recent hikes, so the changes mainly affect interest rates and liquidity without representing a fundamental reversal of macroeconomic policies.
For example, the European Central Bank increased its three main interest rates by 25 basis points in June amid inflation pressures from Middle Eastern conflicts and held these rates steady in July. Meanwhile, the Federal Reserve has maintained its target range for the federal funds rate at 3.5% to 3.75% since early this year, according to its July policy report.
Domestic Monetary Policy to Remain Moderately Easing
Given China’s sizable economy, its monetary policy has traditionally focused on domestic needs while considering the balance with global factors, industry experts have noted.
In recent years, the PBOC has adopted a moderately easing monetary stance to create a conducive environment for stable growth and high-quality economic development. Looking ahead, authorities plan to leverage existing policies effectively, implement targeted incremental measures, enhance countercyclical adjustments, expand domestic demand, and improve supply-side reforms.
The central bank aims to continue a moderately loose monetary policy while harnessing the synergy between other policy measures to support economic stability, the report stated.