China's Central Bank Reaffirms 'Loosely Appropriately' Monetary Policy Amid Challenges

On November 11, 2025, the People's Bank of China (PBOC) released its third-quarter monetary policy implementation report, reaffirming its commitment to an "appropriately loose" monetary policy stance. This approach aims to bolster the economy as it grapples with challenges such as weak domestic demand and the enduring impact of U.S. tariffs.

The PBOC's decision underscores its strategy to maintain ample liquidity, stabilize prices, and reduce financing costs for banks and businesses. This policy direction is crucial as China confronts a confluence of internal and external pressures, including a slowdown in economic growth, a struggling property sector, and escalating trade tensions with the United States.

Economic Growth Slowdown

China's GDP growth has decelerated, with the economy expanding by 4.8% in the third quarter of 2025, down from 5.2% in the previous quarter. This marks the slowest pace in a year, influenced by factors such as U.S. tariffs and subdued domestic demand.

Property Sector Challenges

The real estate market continues to face difficulties, with residential property sales declining by 7.6% year-to-date. Major developers like Evergrande have encountered financial distress, leading to defaults and impacting local government revenues.

Trade Tensions

The ongoing trade dispute with the United States has led to increased tariffs, affecting China's export sector. In September, exports to the U.S. dropped by 27%, although overall global exports rose by 8.3%, driven by sectors like electric vehicles.

PBOC's Monetary Policy Measures

In response to these challenges, the PBOC has implemented several monetary policy measures throughout 2025:

• Interest Rate Stability: The PBOC has kept the one-year Loan Prime Rate (LPR) at 3.0% and the five-year LPR at 3.5% for five consecutive months as of October 2025. These rates serve as benchmarks for corporate loans and mortgages, respectively.

• Liquidity Injections: In March 2025, the central bank injected 800 billion yuan into the banking system through outright repurchase agreements to ensure sufficient liquidity.

• Reserve Requirement Ratio (RRR) Reduction: On May 7, 2025, the PBOC announced a 0.5 percentage point reduction in the RRR, effective May 15, 2025. This move was intended to release approximately 1 trillion yuan in long-term liquidity to support the real economy.

• Policy Rate Cut: The PBOC reduced the seven-day reverse repurchase rate by 10 basis points, from 1.50% to 1.40%, effective May 8, 2025. This rate cut aimed to lower borrowing costs and stimulate economic activity.

Global Monetary Policy Considerations

The PBOC's decisions are also influenced by global monetary policy trends. For instance, the U.S. Federal Reserve's rate adjustments have implications for capital flows and exchange rates, factors that the PBOC monitors closely to inform its policy decisions.

Implications

By ensuring ample liquidity and reducing financing costs, the PBOC aims to stimulate investment and consumption, thereby supporting economic growth. Maintaining stable interest rates and injecting liquidity help prevent financial market volatility and support the banking sector's health. The PBOC's policies also aim to stabilize the yuan, which is crucial for maintaining investor confidence and managing inflationary pressures.

Conclusion

As China navigates a complex economic landscape marked by internal challenges and external pressures, the PBOC's commitment to an "appropriately loose" monetary policy reflects its proactive approach to sustaining economic stability and growth. The effectiveness of these measures will be closely watched in the coming months as the global economic environment continues to evolve.