The People's Bank of China (PBOC) is set to implement two key policy initiatives, encompassing eight specific measures, to bolster the economy. These actions aim to enhance support through structural monetary policy tools and reduce interest rates on these instruments.
At a press conference held by the State Council Information Office, PBOC Deputy Governor Zou Lan announced that, based on current economic and financial conditions, the central bank will first roll out policies in two main areas. One involves cutting interest rates on various structural monetary policy tools to boost banks' enthusiasm for lending in key sectors. The other focuses on improving these structural tools and increasing support to further aid economic structural transformation and optimization.
Wang Qing, Chief Macro Analyst at Dongfang Jincheng, stated that this year the PBOC will optimize the use of various structural monetary policy tools. The focus will be on the "five major financial priorities," guiding financial resources to better support technological innovation, manufacturing transformation and upgrading, green development, small and micro enterprises, as well as consumption promotion and foreign trade stabilization—key and vulnerable areas of the national economy.
The two policy initiatives introduced by Deputy Governor Zou Lan consist of eight specific measures.
First, the interest rates on all structural monetary policy tools will be cut by 0.25 percentage points. The one-year rate for various relending facilities will be reduced from the current 1.5% to 1.25%, with rates for other maturities adjusted accordingly.
Second, the relending facilities for supporting agriculture and small businesses will be integrated with rediscount facilities, with increased quotas and a separate relending facility established specifically for private enterprises. The integrated quota for these facilities will be increased by 500 billion yuan, with a dedicated 1 trillion yuan relending facility for private enterprises, focusing on supporting small and medium-sized private firms.
Third, the quota for the relending facility supporting technological innovation and technical transformation will be increased, and its scope of support expanded. The quota will be raised by 400 billion yuan from 800 billion yuan to 1.2 trillion yuan, and support will be extended to include private small and medium-sized enterprises with high levels of R&D investment.
Fourth, a unified risk-sharing tool for bonds issued by technological innovation and private enterprises will be established. The existing support tools for private enterprise bond financing and technological innovation bond risk sharing will be merged and managed under a combined relending quota of 200 billion yuan.
Fifth, the supported scope of the carbon reduction support tool will be expanded. It will now include more projects with carbon reduction effects, such as energy-saving renovations, green upgrades, and green low-carbon energy transitions, guiding banks to support comprehensive green transformation.
Sixth, the supported areas of the relending facility for service consumption and elderly care will be expanded. In line with health industry certification standards, the health industry will be incorporated into the supported scope of this facility at an appropriate time.
Seventh, in conjunction with the National Financial Regulatory Administration, the minimum down payment ratio for commercial housing mortgages will be lowered to 30% to support the reduction of inventory in the commercial and office real estate market.
Eighth, financial institutions will be encouraged to enhance their foreign exchange risk hedging services. This includes enriching hedging products and providing enterprises with cost-effective, flexible, and efficient tools for managing exchange rate risk.
Deputy Governor Zou Lan indicated that the policy documents for these measures will be released shortly. In line with the State Council's executive meeting部署, their implementation will be coordinated with fiscal policies such as fiscal subsidies, guarantees, and risk-cost sharing to further amplify policy effectiveness and jointly promote the expansion of effective domestic demand. The PBOC will also continue to increase liquidity injections, flexibly utilizing various open market operation tools to maintain ample liquidity and guide overnight rates to operate near the level of policy rates.
Dong Ximiao, Chief Researcher at Zhaolian, commented that the series of monetary policy measures announced by the PBOC emphasize "interest rate cuts" and "structural optimization," sending a clear signal that monetary policy will remain appropriately accommodative. The policies significantly tilt support towards private, small, and micro enterprises, which is expected to further boost the confidence and vitality of microeconomic entities.
There remains some room for further reserve requirement ratio (RRR) cuts and interest rate reductions this year.
The PBOC announced that, starting January 19, 2026, it will cut relending and rediscount rates by 0.25 percentage points. After the adjustment, the three-month, six-month, and one-year rates for relending supporting agriculture and small businesses will be 0.95%, 1.15%, and 1.25% respectively. The rediscount rate will be 1.5%, the Pledged Supplementary Lending (PSL) rate will be 1.75%, and the rate for special structural monetary policy tools will be 1.25%.
Dong Ximiao believes that the cut in structural monetary policy tool rates will directly reduce the cost for banks to obtain relending funds from the PBOC. This incentivizes banks to offer loans at lower rates to key areas such as small and micro enterprises, technological innovation, and green transition, thereby lowering the comprehensive financing costs for the real economy.
Furthermore, Dong noted that unlike broad interest rate cuts, reducing rates on structural policy tools can improve capital utilization efficiency and enhance the quality and effectiveness of financial services to the real economy. It channels credit resources more precisely into policy-encouraged vulnerable sectors and key areas. This also clearly demonstrates China's resolve to provide financial support for specific fields like technology, consumption, and elderly care, helping to boost business confidence, stabilize market expectations, and attract more social capital into related industries.
Notably, when discussing the potential for RRR and interest rate cuts during the press conference, Deputy Governor Zou Lan stated, "There is still some room from the perspective of this year."
Zou Lan explained that regarding the required reserve ratio (RRR), the current average RRR for financial institutions is 6.3%, indicating that there is still room for RRR cuts. Concerning policy interest rates, external constraints are limited as the Renminbi exchange rate is relatively stable and the US dollar is in a rate-cutting cycle, meaning exchange rates do not pose a strong constraint. Internally, since 2025, banks' net interest margins have shown signs of stabilizing, remaining at 1.42% for two consecutive quarters. Furthermore, a significant volume of long-term deposits (three-year and five-year) will mature and be repriced in 2026. The recent cut in various relending rates by the PBOC will also help reduce banks' interest payment costs and stabilize net interest margins, creating some room for interest rate cuts.
"In recent years, the PBOC has initiated open market operations involving government bond purchases and sales. This policy tool can serve as an alternative to RRR cuts for injecting long-term liquidity into the banking system. Therefore, quantitative easing in monetary policy for 2026 will not be constrained by the room for RRR cuts," Wang Qing added. Overall, with tools including RRR cuts, government bond transactions, the Medium-term Lending Facility (MLF), and outright reverse repos, the PBOC currently has a rich toolkit for injecting medium to long-term liquidity, capable of guiding market liquidity to remain in a stable and ample state.
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