The headquarters of the People's Bank of China in Beijing Photo: IC

The People's Bank of China (PBC), the central bank, said on Thursday that it will lower the reserve requirement ratio (RRR) and interest rates at the appropriate time, based on domestic and international economic and financial conditions, as well as the operation of the financial markets.

A meeting of the PBC Committee of the Communist Party of China on Thursday pledged to effectively implement a moderately loose monetary policy, according to a statement on the PBC's website. 

"Based on domestic and international economic and financial conditions and the operation of financial markets, [the PBC will] choose an appropriate time to lower the RRR and interest rates," reads the statement. 

This came just days after Pan Gongsheng, the PBC governor, said last week that China will cut RRR and interest rates when appropriate this year. The average RRR for China's financial institutions now stands at 6.6 percent, and there is still room for further reduction, Pan said at a news conference on the sidelines of the two sessions. 

Previously, the PBC in September 2024 cut the RRR by 0.5 percentage points for financial institutions, bringing the weighted average RRR for lenders down to 6.6 percent. Also in September 2024, the PBC reduced the standing lending facility interest rates by 20 basis points, according to Xinhua. 

The PBC meeting on Thursday added that it would make comprehensive use of its monetary policy toolkit, including open market operations, to ensure sufficient market liquidity. It also highlighted the importance of further smoothing the transmission channels of monetary policy, improving the interest rate formation and transmission mechanisms, and reducing overall social financing costs. 

The PBC will also enhance communication with market participants to improve policy transparency. It reaffirmed its commitment to allowing market forces to play a decisive role in exchange rate formation, while strengthening expectations guidance to keep the yuan's exchange rate basically stable at a reasonable and balanced level.

It also vowed to make concrete efforts to enhance financial services for major strategies, key areas, and weak links. This includes the scientific application of various structural monetary policy tools to guide financial institutions in increasing support for technology finance, green finance, inclusive finance for small and micro enterprises, and elderly care finance.

To better support economic restructuring and the transition from old to new growth drivers, the central bank is enhancing policy coordination to leverage synergies between monetary policy and fiscal measures such as interest subsidies and risk compensation. 

More efforts will be made to prudently and effectively prevent and resolve risks in key areas, and further comprehensively deepen financial reform and opening-up, the PBC statement said. 

Global Times