“Adhering to an accommodative monetary policy stance, the People’s Bank of China (PBOC) has preliminarily established a modern monetary policy framework with Chinese characteristics, with more effective implementation and transmission, helping to achieve the main economic and social development goals of the 14th Five-Year Plan,” said PBOC Governor Pan Gongsheng at a press conference held by the State Council Information Office (SCIO) as part of the themed series on achievements in high-quality development during the 14th Five-Year Plan period.

The PBOC has introduced a series of concrete measures that collectively chart the course toward a modern central banking system. These include nine rounds of required reserve ratio (RRR) cuts that released approximately RMB7 trillion of long-term liquidity, the deployment of structural policy tools covering the five major financial areas, namely, technology finance, green finance, inclusive finance, old-age finance, and digital finance, the designation of the 7-day reverse repo rate as the policy rate, and the establishment of an institutionalized monetary policy communication mechanism. These initiatives have delivered impressive results, characterized by stable aggregates, an optimized structure, lower costs, and stable expectations. During a recent interview with Financial News, the head of the PBOC’s Monetary Policy Department provided an in-depth overview of the PBOC’s efforts and achievements during the 14th Five-Year Plan period in advancing the transformation of China’s monetary policy framework and deepening market-oriented interest rate reform.

Financial News: The Outline of the 14th Five-Year Plan sets out the goal of developing a modern central banking system and enhancing the mechanism for money supply management. What efforts has the PBOC made to give play to the role of monetary policy instruments in adjusting both the aggregate and the structure, and what outcomes have been achieved?

Head of the Monetary Policy Department of the PBOC: Since the start of the 14th Five-Year Plan in 2021, the PBOC has conscientiously implemented the decisions and arrangements made by the Communist Party of China Central Committee and the State Council, improved the modern monetary policy framework with Chinese characteristics, and worked to give play to the role of monetary policy instruments in adjusting both the aggregate and the structure. As Governor Pan Gongsheng noted at the 2024 Lujiazui Forum, China’s monetary policy stance in recent years has remained accommodative, providing financial support for the steady economic recovery and creating a favorable monetary and financial environment.

First, the PBOC has adopted a mix of monetary policy tools to keep liquidity adequate. Since the start of the 14th Five-Year Plan, the PBOC has reduced the RRR nine times, cumulatively lowering it by 3.5 percentage points and releasing approximately RMB7 trillion of long-term liquidity. It has flexibly adjusted short- and medium-term liquidity using multiple monetary policy tools, enriched its monetary policy toolkit with open market operations involving government bond transactions and outright reverse repos, and strengthened its assessment of the pattern and new features of money and credit supply and demand to promote the reasonable growth of money and credit.

Second, the PBOC has continuously improved structural monetary policy tools to enhance financial services for major national strategies, key areas, and weak links. Adhering to the principle of using structural monetary policy tools in a targeted, appropriate, and flexible manner, the PBOC has launched a range of tools that support technological innovation, green development, and service consumption, achieving full coverage across technology finance, green finance, inclusive finance, old-age finance, and digital finance. It has also explored ways to strengthen its role in conducting macro-prudential management and safeguarding financial stability, while diversifying monetary policy tools to maintain financial market stability.

Overall, monetary policy adjustments during the 14th Five-Year Plan period have delivered remarkable results. First, financial aggregates have witnessed reasonable growth. The annual growth rates of aggregate financing to the real economy and broad money supply (M2) have remained around 9 to 10 percent, significantly above the nominal GDP growth rate of 6 to 7 percent. Second, overall financing costs for the real economy have continued to decline and remained at low levels. In August 2025, the interest rates on newly-issued corporate loans and personal mortgage loans averaged about 3.1 percent, down roughly 1.5 and 2.3 percentage points, respectively, from the end of 2020. Third, the credit structure has continued to improve, with outstanding inclusive loans to micro and small businesses, medium- and long-term loans to the manufacturing sector, and technology loans all growing faster than total loans.

Moving forward, the PBOC will continue to improve the modern monetary policy framework with Chinese characteristics, further enhance the alignment and effectiveness of financial support for the high-quality development of the real economy, and contribute to advancing Chinese modernization through high-quality financial development.

Financial News: The Outline of the 14th Five-Year Plan calls for improving the market-oriented interest rate formation and transmission mechanism. In response, the PBOC has continuously enhanced the market-oriented mechanism for interest rate adjustment in recent years. Could you share the progress made in this regard?

Head of the Monetary Policy Department of the PBOC: During the 14th Five-Year Plan period, the PBOC has deepened market-oriented interest rate reform and strengthened the price-based monetary policy adjustment mechanism. achieving notable progress.

First, the market-oriented mechanism for interest rate adjustment has become more sophisticated. In July 2024, the PBOC designated the 7-day reverse repo rate as the policy rate, improving the transmission from short-term to long-term rates. Adjustments to the policy rate help guide interest rates in the money and bond markets as well as deposit and lending rates, fostering a favorable financing environment for the real economy.

Second, interest rates have become more market-based. In April 2022, the PBOC established a mechanism for market-oriented adjustments of deposit rates and, through the self-regulatory mechanism for interest rates, guided locally incorporated financial institutions to align their deposit rate adjustments with those of large banks. In May 2024, the nationwide floor on interest rates for personal mortgage loans was removed, marking a major step toward fully market-based commercial lending rates. In September 2024, the pricing mechanism for mortgage rates was further refined to coordinate adjustments between existing and new loans, effectively reducing rates on outstanding mortgages.

Third, the implementation and supervision of interest rate policies have been strengthened. Since April 2024, the PBOC has rectified illegal manual interest subsidies by banks, guided non-bank institutions to adjust demand deposit rates in line with policy rate changes, established a reporting mechanism for deposit bidding rates, and standardized corporate deposit service agreements. Banks have been urged to set lending rates reasonably based on operating costs and to maintain stable net interest margins. The PBOC has also conducted inspections on the enforcement of interest rate policies to ensure smoother policy transmission.

Fourth, financing costs for the real economy have declined significantly. Since the beginning of the 14th Five-Year Plan period, the PBOC has lowered the policy rate by 0.8 percentage points and guided reductions of one-year and above-five-year loan prime rates by 0.85 and 1.15 percentage points, respectively, leading to a significant drop in financing costs for the real economy. In September 2024, the PBOC launched a pilot program to require disclosing overall financing costs for corporate loans, which has since been extended to 30 provinces, autonomous regions, and municipalities, benefiting a large number of small and medium-sized enterprises. In August 2025, the weighted average interest rate on newly-issued corporate loans and individual mortgages stood at about 3.1 percent, remaining at a low level.

Financial News: Advancing the two-way opening-up of the financial sector is an important task during the 14th Five-Year Plan period. The PBOC has also repeatedly emphasized that the monetary policy should properly balance internal and external equilibria. What measures has the PBOC taken in recent years to keep the RMB exchange rate basically stable?

Head of the Monetary Policy Department of the PBOC: During the 14th Five-Year Plan period, China’s foreign exchange market has shown remarkable resilience, with the RMB exchange rate remaining basically stable at an adaptive and equilibrium level. This has created favorable conditions for China to independently implement monetary policy and maintain financial market stability.

First, we have adhered to the decisive role of the market in exchange rate formation, ensuring that the RMB exchange rate achieves dynamic equilibrium as it moves in both directions. Over the past five years, we have steadily advanced the market-oriented exchange rate reform. The RMB exchange rate has become much more elastic, with the annualized volatility averaging around 4 percent and movements in both directions becoming the norm. When major economies made significant adjustments to their monetary policies, the RMB exchange rate was always able to return to equilibrium within a certain period of time, effectively serving as an automatic stabilizer in adjusting the macro economy and for the balance of payments.

Second, we have upheld the managed floating exchange rate regime and firmly prevented the risks of exchange rate overshooting. Practice has proven that a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies is well-suited to China’s national conditions. The PBOC has adopted a mix of policy measures and strengthened expectation guidance to prevent the risks of exchange rate overshooting. During the 14th Five-Year Plan period, the RMB exchange rate index published by the China Foreign Exchange Trade System has been running at around 100, and the bilateral exchange rate between the RMB and the US dollar has remained resilient among major currency pairs.

Third, we have adopted the philosophy of exchange rate risk neutrality to strengthen the micro foundation for exchange rate stability. During the 14th Five-Year Plan period, the PBOC and the State Administration of Foreign Exchange have continued to guide both enterprises and financial institutions to be risk-neutral and encouraged financial institutions to provide services of exchange rate risk hedging for micro, small and medium-sized enterprises. Participants in China’s foreign exchange market have become more mature, the exchange rate risk hedging tools have been more widely used, and the market resilience has been enhanced. In September 2025, the foreign currency hedge ratio of enterprises reached around 30 percent, up significantly from 17 percent in 2020.

Looking ahead, China’s macroeconomic fundamentals will remain stable, and the balance of payments is expected to maintain a basic equilibrium on its own, laying a solid foundation for medium- and long-term exchange rate stability. However, the exchange rate will be influenced by various factors. Letting the market play a decisive role in the formation of exchange rates, we will maintain the flexibility of the exchange rate while strengthening guidance of expectations and guarding against the risks of exchange rate overshooting, thus keeping the RMB exchange rate basically stable at an adaptive and equilibrium level.

Financial News: Establishing an institutionalized monetary policy communication mechanism and effectively managing and guiding expectations are among the key features of the modern monetary policy framework. How would you assess the PBOC’s work on expectation management during the 14th Five-Year Plan period?

Head of the Monetary Policy Department of the PBOC: The Outline of the 14th Five-Year Plan places particular emphasis on expectation management to ensure effective monetary policy communication and expectation guidance, which has been a long-term and ongoing priority for the PBOC.

During the 14th Five-Year Plan period, the PBOC has continued to innovate relevant mechanisms to strengthen effective communication with the market through various channels. First, we have issued credible policy guidelines and offered thorough interpretations. High-level officials of the PBOC have participated in multiple SCIO press conferences to release a package of monetary and financial policies. They have also deepened exchanges with market participants through the Lujiazui Forum and the Financial Street Forum. Second, we have continuously improved the regular mechanisms for expectation management. Via our official website, we release daily announcements on open market operations, publish key financial data on a monthly basis, and issue the China Monetary Policy Report on a quarterly basis as well as press releases on the Monetary Policy Committee’s quarterly regular meetings, to help the market gain an accurate understanding of the monetary policy stance. We publish the People’s Bank of China Annual Report each year to provide a comprehensive and objective account of the implementation effect of monetary policy. Third, we have strengthened the release and interpretation of financial data. We have promptly carried out policy promotion and data interpretation in response to market concerns and data developments. Fourth, we have effectively communicated China’s financial story. By participating in meetings organized by international organizations such as the International Monetary Fund and the Bank for International Settlements, we have shared China’s macroeconomic and financial developments to enhance mutual understanding and boost the confidence of international investors. Fifth, we have intensified efforts to promote public understanding of the monetary policy. Through the PBOC’s WeChat Official Account, we have published a series of interpretative articles which are easy to understand and presented in diverse forms.

Thanks to these sustained efforts, China’s monetary policy transparency has steadily improved in recent years, contributing to more understandable and credible policies. The efficiency of policy transmission has been significantly enhanced and valuable experience has been gained in strengthening expectation management.