Recently, at the regular meeting of the Monetary Policy Committee of the central bank in the second quarter of 2025, it was mentioned that:

China’s economy is showing a positive trend, social confidence is continuously boosted, and high-quality development is steadily advancing. However, it still faces difficulties and challenges such as insufficient domestic demand, persistently low prices, and numerous risks and hidden dangers. We should implement a moderately loose monetary policy well, strengthen counter-cyclical adjustment, better leverage the dual functions of monetary policy tools in terms of both quantity and structure, enhance the coordination and cooperation of monetary and fiscal policies, and maintain stable economic growth and reasonable prices.

Two pieces of information can be read from this. First, the decision not to cut the reserve requirement ratio or interest rates might be made based on the changes in domestic economic data in the future, whether the Federal Reserve cuts interest rates or not, and the situation of the game between China and the United States. Not cutting the reserve requirement ratio or interest rates in the short term is also one of the reasons for the strength of the RMB.

Second, it highlights the importance attached to prices. On the one hand, it faces up to the challenge of persistently low prices. On the other hand, it also states that the quantitative and structural roles of monetary policy should be brought into play to ensure that economic growth and prices maintain reasonable growth.

It can be imagined that in the future, the central bank may make greater use of MLF, reverse repo and other structural monetary policy tools (such as intensifying support for technological innovation to boost consumption, etc.).

Just as Yu Yongding, an academician of the Chinese Academy of Social Sciences, said before:

Compared with 2024, the People’s Bank of China aims to lower the market benchmark interest rate and accelerate the growth rate of M2 through existing policy tools, so as to achieve the ultimate monetary policy goal of a GDP growth rate of around 5% and an inflation rate increase of around 2%.

There may be no interest rate cut in the short term, but the sustained rebound of M2 is still worth looking forward to. In May, China’s broad money supply (M2) reached 7.90%, showing a relatively significant rebound from 7% in January.

Before the interest rate cut arrives, the RMB exchange rate often appears relatively strong. When M2 continues to rebound, the rebound of the stock market also adds a bit of confidence.