August 13, 2026 (InvestinChina.asia) – The People’s Bank of China (PBOC) on August 12 released its China Monetary Policy Report, Second Quarter 2026, laying out the central bank’s next-step policy framework: continue with an accommodative monetary stance, deploy existing policy tools to their full effect, and design pragmatic incremental measures in a timely manner based on domestic and international economic and financial conditions.
The report underscores that the PBOC will calibrate the intensity, pace and timing of policy implementation in line with economic and financial market dynamics, while strengthening coordination with fiscal policy to support stable growth, high-quality development and orderly financial market functioning.
Liquidity, interest rates and loan pricing benchmarks
The central bank pledged to use a comprehensive mix of monetary instruments and adjust them as needed to keep liquidity ample and social financing conditions relatively loose, guiding the growth of aggregate social financing and money supply to match the economy’s growth and inflation targets.
On interest rates, the report calls for steady and orderly reform of the monetary policy operating framework, better steering short-term money market rates to run smoothly around the policy rate. The PBOC will leverage the self-regulatory mechanism on market interest-rate pricing to strengthen policy execution and supervision, promote diversification of loan pricing benchmarks, and guide financial institutions to sharpen their rate-pricing capabilities. It will also deepen disclosure of the comprehensive financing cost of corporate loans, reduce intermediate financing fees, and keep overall social financing costs at a low level.
Notably, the report signals a further shift toward price-based regulation. Since 2024, the PBOC has designated the 7-day reverse repo rate as its primary policy rate, downplaying the policy-rate role of tools such as the Medium-Term Lending Facility (MLF), and gradually steering the target rate toward the overnight money market rate. In June, the central bank optimized its temporary outright purchase / reverse repo mechanisms and introduced overnight reverse repo instruments.
Going forward, the PBOC will gradually increase the frequency of overnight reverse repo operations based on primary dealer demand, further smoothing the transmission from policy rates to market rates. The move comes as the central bank announced on August 12 that it will conduct overnight reverse repos on August 14 and August 17–19, with daily volumes capped at RMB 6 billion, marking the first time the instrument is deployed mid-month rather than at month-ends.
Exchange rate: flexibility with stability
On the currency front, the report reaffirms a managed floating exchange-rate regime based on market supply and demand, with reference to a basket of currencies, while preserving exchange-rate flexibility. The PBOC aims to let the exchange rate play its role as an automatic stabilizer for the macroeconomy and the balance of payments, and will take comprehensive steps to enhance foreign exchange market resilience, anchor expectations and guard against excessive exchange-rate swings.
The central bank expressed its commitment to keeping the RMB exchange rate basic stability at a reasonable and balanced level. As of the report’s publication, the RMB traded at 6.7501 per dollar, up 0.20% on the session.
Inflation outlook and external spillovers
The report assesses that China’s fundamentals — stable economic performance with structural improvement — remain intact, though the foundation for a sustained recovery still needs to be consolidated. Looking ahead, government bond issuance is expected to accelerate, and continued progress on “two-weight” investment, urban renewal and new energy system construction will further unlock the synergies of macro policy, steadily releasing demand.
China’s prices are expected to maintain reasonable growth, supported by a robust supply-stabilization framework, ample supplies of essential consumer goods, diversified energy import channels, sufficient reserves and rising industrial-chain resilience.
On the global stage, geopolitical tensions in the Middle East pushed crude oil and commodity prices higher in the first half of the year, lifting inflation across major economies. By end-July, the European Central Bank and the Bank of Japan had already raised rates, while the U.S. Federal Reserve held rates steady but struck a hawkish tone. The report judges that the current round of monetary policy adjustments by major economy central banks will be relatively moderate — energy shocks are easing, limiting the need for aggressive hikes, and pre-adjustment constraints mean the moves amount to changes in rates and liquidity rather than a sharp macro-policy reversal.
Nevertheless, the PBOC warned of uncertainties surrounding the impact on global financial markets: elevated government debt in some economies could amplify debt-service pressures as rates rise, while richly valued equity markets could face corrections amid tightening liquidity. China, having deeply integrated into globalization and accelerating the “dual circulation” development pattern, will stay vigilant to external spillovers while keeping its long-standing principle of “putting our own house in order” on monetary policy.
Private-enterprise relending: RMB 800 billion deployed
In a dedicated column, the report details the private-enterprise relending facility, a RMB 1 trillion vehicle unveiled earlier this year specifically to support private small and micro enterprises and fill the financing gap for medium-sized private firms — the so-called “sandwich layer” that lacks both the diversified funding channels of large enterprises and the policy support available to micro firms.
As of end-July, the outstanding balance of the private-enterprise relending facility stood at approximately RMB 800 billion. At end-Q2, local incorporated financial institutions had extended about RMB 15 trillion in loans to small and micro private-enterprise borrowers, reaching roughly 2.5 million market entities. In the first half, the weighted average rate on newly issued small and micro private-enterprise loans by these institutions fell 40 basis points year-on-year.
The PBOC said it will continue to leverage the incentive effect of the relending facility, guiding local incorporated financial institutions — through market-oriented means — to scale up credit to private enterprises and improve financing accessibility for private small, micro and medium-sized firms.
The report also reaffirms the central bank’s commitment to fulfilling the “five articles” of financial work — boosting support for key areas including domestic demand expansion, technological innovation and small and micro enterprises — while giving full play to the dual aggregate and structural functions of monetary policy tools.