MNI: PBOC To Support Fiscal Efforts, Broad Easing Seen Limited

The People's Bank of China will provide support for fiscal expansion and for government efforts to shift the economy towards a greater reliance on domestic consumption during 2026, providing targeted loans in coordination with a new CNY100 billion fund, but will be cautious about any broad-based monetary easing, particularly as energy prices surge, policy advisors said.

The annual Government Work Report released on Thursday made boosting consumption a key focus of expanding domestic demand for 2026. As fiscal policy is a more direct and effective tool in this mission, the central bank will mainly play a support role to government spending, said Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University. 

The Report announced a CNY100 billion fund aimed at coordinating fiscal and monetary efforts, mainly via cheap loans, subsidies, financing guarantees, and risk compensation aimed at boosting consumption and investment. The PBOC cut interest rates on its structural tools, providing loans to small businesses, tech firms and for consumption, in February, with fiscal authorities providing subsidies. (See MNI: China's Decades-Low GDP Target Fits Econ Slowdown Trend )

But, with credit costs already at historically low levels, the scope for broad-based easing policies through reserve requirement ratio cuts and interest rate reductions is likely to be limited, Zhao said. 

Xu Hongcai, deputy director of the China Association of Policy Science’s Economic Policy Commission, agreed, saying benchmark interest rates were likely to be cut by no more than 10 basis points in 2026, while reserve requirement ratios could be reduced by a total of 50 basis points. 

INFLATION

The Report targeted CPI inflation of around 2%, unchanged from last year, though 2026 finished with consumer prices unchanged.

Authorities had been likely to face some challenges getting inflation back over 1% this year, given the deflationary pressures of the past two years, though the surge in energy prices following the U.S.-Israeli attack on Iran is likely to boost prices in the short- to medium-term, said Lian Ping, director of the China Chief Economist Forum.

Imported inflation is more damaging to industry and the economy than the demand-driven variety, noted Xu, who nonetheless expected the impact of dearer energy to be moderate and temporary. (See MNI INTERVIEW: Long Conflict A Risk To China Chemical Output)

REFORM

While the fiscal and monetary boosts are temporary, shifting towards greater consumption and a higher-tech economy should naturally add to growth in the longer run, said Xu, also chairman of Beijing Honglve Consulting Limited Company, highlighting initiatives aimed at stimulating consumption in lower-tier markets and in innovative services. (See MNI: China Govt Needs More Debt To Sustain Growth - Advisor)

Zhao agreed that a lower GDP target this year suggested more focus on longer-lasting reforms, with building a unified national market and guarding against “involutionary” competition core priorities.