China’s central bank signals steady, cautious support for growth

China’s central bank reaffirmed its supportive monetary policy stance while signalling continued caution toward aggressive stimulus, reinforcing a shift toward securing long-term stability over immediate fixes.

The People’s Bank of China (PBoC) vowed to guide borrowing costs to continue hovering at a low level, according to a Wednesday statement following its fourth-quarter monetary policy committee meeting. The bank repeated a pledge to step up "cross-cyclical” policies, a phrase suggesting it aims to look beyond short-term volatility and avoid excessive stimulus that could create structural imbalances.

The statement didn’t mention a reduction in interest rates or to the reserve requirement ratio, which determines how much cash banks must keep in reserves, while the PBoC pledged to make use of multiple policy tools. That suggests the central bank is cautious about taking those big easing steps, even after a readout following a key annual economic work conference included a reference to those measures earlier this month.

The language suggests "a preference toward a reactive rather than proactive approach to easing,” Goldman Sachs Group Inc economist Xinquan Chen said in a note Thursday. Changes in the language "point to a more cautious and flexible approach to monetary policy easing”, he said.

This measured approach comes despite deepening weakness in domestic demand, with retail sales last month expanding at the lowest pace since the crash caused by Covid. Fixed-asset investment is also on track for its first annual decline in data going back to 1998, after a crash made worse by a drought in funding for infrastructure projects.

The committee said it will "grasp the strength, pace and timing” of policy implementation based on evolving domestic and overseas conditions. The PBoC also reiterated its commitment to maintaining the yuan’s basic stability at a reasonable and balanced level to guard against overshooting risks.

The PBoC has adopted a cautious approach this year, frequently disappointing economists who had anticipated more aggressive interest rate cuts. This restraint reflects the central bank’s deeper concerns over protecting shrinking bank margins and preserving policy space for future downturns.

While the meeting readout mentioned maintaining "ample” liquidity, the focus on "quality and efficiency” over raw volume suggests that any further easing will be mostly targeted.

The PBoC will likely cut the RRR by 50 basis points in the first quarter to maintain ample liquidity and ensure government borrowing costs stay low, economists at China Galaxy Securities Co wrote in a report on Thursday.

While it may cut the policy interest rate by 10 to 20 basis points in 2026, any reduction may only be triggered by an increase in economic pressure, such as a deterioration in the US-China relationship or worsening unemployment, they said.