Beijing (Reuters)

China’s central bank plans to enhance its monetary policy strategies and gradually adjust treasury bond transactions, as stated in its second-quarter monetary policy report.

Key Points

• The People’s Bank of China (PBOC) aims to lower financing and credit costs for companies and households, ensuring that the monetary policy remains “flexible, moderate, precise, and effective.”
• The bank intends to manage credit growth and maintain liquidity levels.
• It will monitor long-term bond yields during economic recovery and conduct stress tests on financial institutions to mitigate interest rate risks.
• The PBOC intends to improve its methods of monetary base injection and gradually increase government bond trading in the open market.
• Observations of foreign central bank policies will also be a focus.

Economic Context

China’s second-quarter economic growth fell short of expectations, impacted by a property downturn and slow domestic demand. Mixed signals emerged from July’s economic indicators.

Interest Rates and the Yuan

The central bank plans to adjust the interest rate corridor and clearly signal any changes to the market. Recent measures include employing temporary repos to enhance open market operations.

Regarding the Chinese yuan, the PBOC aims to prevent unilateral expectations and curb risks of excessive exchange rate fluctuations, with the yuan appreciating this month amid broader market changes.

Property Sector Support

To stabilize the property sector, the PBOC will increase support for construction activities and affordable housing development, while maintaining price stability and moderate inflation in its monetary policy—key concerns highlighted given recent increases in consumer prices due to supply disruptions and ongoing producer deflation.