The People's Bank of China's Monetary Policy Committee convened for its 2026 second-quarter meeting.

The meeting assessed that macro policies have been more proactive and effective this year. Monetary policy has maintained an appropriately accommodative stance, strengthening counter-cyclical and cross-cyclical adjustments and utilizing various monetary policy tools comprehensively to create a suitable monetary and financial environment for the economy's continued improvement.

Regarding the main direction for the next phase of monetary policy, the meeting concluded that the appropriately accommodative monetary policy stance should continue. The intensity of counter-cyclical and cross-cyclical adjustments will be increased to better leverage the dual functions of monetary policy tools in managing aggregate supply and structural adjustments. Coordination between monetary and fiscal policies will be enhanced to promote stable economic growth and a reasonable recovery in prices.

An expert noted that, overall, monetary policy is increasingly focusing on refined operations within the accommodative framework. While maintaining ample liquidity, greater emphasis is being placed on the efficiency of policy transmission, financial stability, and balance of payments equilibrium. This is to make forward-looking arrangements for coping with increasingly complex internal and external environments, reflecting a shift in macro-control from short-term growth stabilization to balancing both short-term stability and long-term structural optimization.

Persistent Challenges: Strong Supply vs. Weak Demand, Structural Divergence, and External Shocks

Regarding the international economic and financial situation, the meeting acknowledged that the external environment has become more complex and volatile. Momentum for global economic growth is weak, geopolitical conflicts and trade frictions occur frequently, economic performances among major economies are diverging, and the trajectory of inflation and monetary policy adjustments remains uncertain.

Concerning the domestic economic situation, the meeting observed that China's economic performance remains generally stable, trending towards innovation and quality, with new achievements in high-quality development. However, challenges persist, including a supply-demand imbalance (strong supply versus weak demand), structural divergence, and external shocks.

Analysis suggests that the meeting's characterization of the external environment shifted from "deepening changes and impacts" in the Q1 meeting to "more complex and volatile." It mentioned trade friction shocks for the first time and pointed out three domestic challenges: the supply-demand imbalance, structural divergence, and external shocks. Compared to the Q1 meeting, which only mentioned "strong supply vs. weak demand and external shocks," this indicates a deeper focus on internal structural contradictions.

Another analysis noted that regarding the domestic economic situation, while maintaining the "generally stable" description from the Q1 meeting, the phrasing was adjusted from "stable with progress" to "trending towards innovation and quality." This change reflects a shift in China's economic development during this phase from steady growth towards gradual structural optimization. "Innovation" likely corresponds to new quality productive forces, while "quality" corresponds to the optimization of the economic growth structure.

The meeting added new language about "strengthening the endogenous driving force of economic development, further strengthening the domestic circulation, and optimizing the domestic and international dual circulation." Analysis suggests that the new mention of "optimizing the domestic and international dual circulation" incorporates the international cycle as a factor driving economic growth. This may imply that in the next phase, the central bank's monetary policy support for the real economy will also consider the impact of overseas supply and demand.

Enhancing Policy Foresight, Flexibility, and Targeted Precision

The meeting studied the main direction for the next phase of monetary policy, suggesting leveraging the integrated effects of incremental and existing policies. It emphasized enhancing the foresight, flexibility, and targeted precision of policies, and appropriately managing the intensity, pace, and timing of policy implementation based on domestic and international economic and financial situations and financial market operations.

Experts indicated that regarding the policy approach, the meeting placed stronger emphasis on the integrated effects of incremental and existing policies. Compared to the Q1 meeting, it added phrases such as "enhancing foresight, flexibility, and targeted precision" and "appropriately managing the intensity, pace, and timing of policy implementation."

Analysis interprets "foresight" as meaning monetary policy operations will anticipate changes in the real economy and capital markets. "Flexibility" suggests monetary tool operations will adjust promptly, advancing or retreating as needed. "Targeted precision" indicates that in the next phase, the central bank will continue to increase its focus on structurally supportive areas.

On interest rates, the meeting clarified the need to strengthen the guiding role of the central bank's policy rates, improve the market-based interest rate formation and transmission mechanism, leverage the role of the market interest rate pricing self-disciplinary mechanism, and strengthen the implementation and supervision of interest rate policies. It also called for standardizing credit market practices, reducing intermediate financing costs, and promoting a low overall social financing cost environment.

Experts noted that, while continuing the call to "reduce intermediate financing costs," the meeting explicitly required "strengthening the implementation and supervision of interest rate policies."

Regarding the bond market, the meeting clarified the need to observe and assess bond market operations from a macro-prudential perspective, paying attention to changes in long-term yields. Analysis indicates this continues the emphasis on monitoring long-term yield changes from a macro-prudential angle.

The meeting also mentioned making good use of various structural monetary policy tools, optimizing tool management, solidly advancing the "Five Major Areas of Finance," strengthening financial support for key areas such as expanding domestic demand, technological innovation, and small, medium, and micro enterprises, and continuously providing financial services to support the development and growth of the private economy.