Lower the reserve requirement ratio for financial institutions, set up 500 billion yuan of re-lending for service consumption and elderly care, and further optimize two monetary policy tools to support the capital market…… In the first half of 2025, under the central government’s policy tone of “moderately loose” monetary policy, a series of policy measures were implemented simultaneously, creating a suitable monetary and financial environment for the stable growth of China’s economy.
Especially on May 7th, Pan Gongsheng, governor of the People’s Bank of China, announced at a press conference held by the Information Office of The State Council the introduction of a package of monetary policy measures, mainly involving three categories and ten specific policies. From price-based to quantity-based, from focusing on consumption to strongly supporting innovation, industry experts say that these measures demonstrate a supportive monetary policy stance with great intensity. The various policies have been gradually and effectively implemented, and the effects will gradually emerge.
China’s financial data for May has already reflected changes. By the end of the month, the year-on-year growth rates of social financing scale and broad money supply (M2) were 0.3 and 0.9 percentage points higher than those of the same period last year respectively. The total financial volume maintained a reasonable growth overall, providing strong support for the real economy.
The recent second-quarter meeting of the Monetary Policy Committee of the People’s Bank of China in 2025 mentioned that to promote the sustained recovery and improvement of the economy, it is necessary to “make full use of existing policies and intensify the implementation of new policies.”
What measures will monetary policy take in the second half of the year to stabilize the economy?
Looking ahead to the second half of 2025, against the backdrop of the Federal Reserve possibly cutting interest rates further and domestic inflation remaining moderate, China’s monetary policy is expected to maintain a loose orientation. Cheng Shi, chief economist of ICBC International, expects that there is still a possibility of one interest rate cut in China within the year, with the extent possibly ranging from 10 to 20 basis points. Additionally, a targeted or comprehensive reserve requirement ratio cut of 25 to 50 basis points may be implemented to promote credit expansion, lower financing costs and stabilize market expectations.
In Cheng Shi’s view, the policy’s objective is not only to support domestic demand but also to enhance the efficiency of capital allocation and guide resources towards new productivity areas.
In this way, while ensuring sufficient liquidity, the People’s Bank of China will continue to play the important role of precise and targeted implementation of structural monetary policy tools.
Zhang Jun, the managing director and chief economist of China Galaxy Securities, believes that by focusing on technology, consumption, foreign trade, the real estate market and the stock market, the central bank is expected to continue creating or optimizing existing structural monetary policy tools.
Among them, consumption remains the key support for China’s economy to withstand pressure. At the beginning of 2025, in order to stabilize and expand consumption, relevant departments rolled out a series of special actions to boost consumption, focusing on key areas such as automobiles, home appliances, electronic products and tourism.
Macro policies place greater emphasis on supporting the expansion of domestic demand and the promotion of consumption, and monetary policy is no exception. Some market analysts have pointed out that China has gradually entered a high-quality development stage. The consumption structure of residents is being optimized and upgraded. The demand for high-quality services will continue to rise, and service consumption has considerable growth potential. The recent service consumption and elderly care re-lending tools launched by the People’s Bank of China will help enterprises enhance the supply level of service consumption and better meet the public’s demand for high-quality services. This is also an important direction for future macro policy support to boost consumption.
Xiong Yuan, chief economist of Guosheng Securities, predicts that in addition to the overall interest rate cut, structural monetary policy tools may also further reduce interest rates this year to increase support for specific areas and promote economic structural transformation.
In addition, the new policy-based financial tools mentioned by the authorities are highly anticipated by the outside world. Zhang Jun said that the new policy-based financial tools will be used to expand investment and solve the problem of insufficient capital for project construction, and are expected to be launched at an appropriate time within this year. Although stimulating consumption ranks first among policies, stimulating effective investment remains an important means of counter-cyclical adjustment.
Zhang Jun speculated that the investment fields of this round of policy-based financial tools might include consumer infrastructure and other aspects. Specific investment directions may involve digital economy, artificial intelligence, low-altitude economy, infrastructure in the consumption field, green and low-carbon transformation, agriculture and rural areas, transportation and logistics, municipal and industrial parks, etc.
