China’s central bank signals reserve ratio, interest rate cuts in 2026

China’s central bank has reiterated its commitment to a “moderately loose” policy stance in 2026, pledging stronger countercyclical and cross-cycle adjustments and signalling flexible and efficient use of reserve requirement ratio (RRR) cuts and interest rate reductions to support a strong start to the 15th five-year plan.\nAt a work conference outlining priorities for the coming year, the People’s Bank of China also highlighted goals including a reasonable recovery in prices, mitigating financial risks in critical sectors, maintaining yuan stability and improving infrastructure for cross-border use of the currency.\n“[We need to] enhance the forward-looking nature, targeting and coordination of macroeconomic policy,” the PBOC said in a readout issued after the two-day conference, which concluded on Tuesday.\n“[We will] focus on expanding domestic demand and optimising supply, preventing and defusing risks and stabilising social expectations … to provide strong financial support for a good start to the 15th five-year plan.”\nThe central bank also pledged to keep the yuan “basically stable at a reasonable and balanced level” and guard against the risk of exchange-rate overshooting.\nThe yuan has strengthened in recent months, breaking through the psychologically important 7-per-US-dollar mark. Analysts at Goldman Sachs said in a note on Monday that while policymakers may signal preference for a stronger yuan, recent policy communications suggest “the central bank is keen to avoid too fast an appreciation”.\nA commentary published on Wednesday in Financial News, an outlet affiliated with the central bank, highlighted uncertainty over the global inflation trajectory, shifts in monetary policy abroad and tension between strong supply and weak demand at home despite overall economic stability.\n\n\n“As the saying goes, ‘The waves grow fiercer when a boat reaches midstream, and the road grows steeper when a person reaches halfway up the mountain,’” the commentary said.\n“The more we are in a critical phase of moving forward under pressure and climbing over obstacles, the more we must place greater emphasis on the continuity, stability and sustainability of policies.”\nIn the conference readout, the bank also pledged to maintain a relatively loose social financing environment and to “align growth in total social financing and money supply with economic and price targets”, while continuing to address debt risks in local government financing platforms and steadily manage exits.\nIn a note on Wednesday, analysts at China Galaxy Securities forecast a half percentage point in cuts to the RRR – the percentage of a bank’s deposits that must be held in reserve – and targeted interest rate cuts in the first quarter, with fiscal policy taking the lead and monetary policy playing a coordinating role.\nOne to two interest rate cuts are expected over the course of the year, with total policy rate reductions of 0.1 to 0.2 percentage points, they added.\nThe central bank also vowed to consolidate Hong Kong’s status as an international financial centre, safeguarding the stability and prosperity of its financial markets.\nIt said it would improve infrastructure for cross-border yuan use, welcome more qualified overseas entities to issue “panda bonds” – yuan-denominated debt securities issued by overseas institutions in China – and expand the interconnection of the fast payment system.\nThe PBOC added that it would promote global macroeconomic policy coordination through the Group of 20 and other multilateral platforms, participate in shaping international financial rules and support the building of a Shanghai centre for the International Monetary Fund.\n