MNI PBOC WATCH: Targeted Easing In Focus, Rate Cuts Delayed

The People’s Bank of China will focus on targeted easing to expand domestic demand and support economic transformation, while remaining cautious about broad-based easing measures unless growth falls short of expectations or significant volatility emerges in capital markets.

Authorities held China’s Loan Prime Rate steady on Friday at 3.0% for the one-year maturity and 3.5% for the five-year tenor and above, marking a 10th consecutive month without change. Both rates were last cut by 10 basis points in May 2025, after the PBOC lowered its 7-day reverse repo rate — the benchmark policy rate — by 10bp to 1.4% on May 8, followed by a 50bp reduction in the reserve requirement ratio on May 15. (See MNI PBOC WATCH: March LPR To Hold Amid Higher Inflation)

The decision was widely expected as the Bank kept its key policy rate unchanged amid rising inflation, surging oil prices and stronger-than-expected export growth in the first two months of 2026.

LIMITED EXPECTATIONS

Advisers expect only limited interest rate or reserve requirement cuts this year. Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University, told MNI that with credit costs already at historically low levels, the scope for broad-based easing through RRR cuts and interest-rate reductions is likely limited.

Xu Hongcai, deputy director of the China Association of Policy Science’s Economic Policy Commission, added that benchmark interest rates are unlikely to fall by more than 10bp in 2026, while RRR cuts may total 50bp. Imported inflation poses greater risks to industry and the economy than demand-driven inflation, he cautioned. (See MNI: PBOC To Support Fiscal Efforts, Broad Easing Seen Limited)

China’s PPI narrowed its prolonged year-on-year decline to -0.9% in February, while CPI rose 1.3% y/y, marking the highest increase in three years, according to the National Bureau of Statistics.

TARGETED SECTORS

The central bank will continue offering support for sectors identified as key drivers of the economy and demand expansion.

Lin Jianhua, former head of the PBOC’s Hubei branch, told MNI authorities will broaden financing channels for technology firms with asset-light models and enhance their fundraising through innovation. He highlighted the prioritisation of financial institutions with mature risk management and green finance capabilities to introduce diversified carbon financial products, support enterprise revitalisation of carbon assets, and expand financing in low-carbon sectors.

In February, the PBOC cut rates on structural lending tools by 25bp to 1.25%, targeting small businesses, tech firms, and consumption, with fiscal authorities providing subsidies. PBOC Governor Pan Gongsheng told reporters earlier this month that the Bank will focus its targeted tools in 2026 on domestic demand, technological innovation, and small and medium-sized enterprises, while guiding financial institutions to assess risks and optimise credit structures to drive economic restructuring and upgrading.