Key Takeaways

The PBOC's monetary policy throughout 2024 underscores a measured yet proactive approach to support economic recovery, maintain liquidity stability, and enhance sectoral growth. Targeted rate cuts, reduced reserve requirements, and real estate sector support exemplify a strategic commitment to fostering financial stability and inclusive growth while addressing structural challenges.

The People's Bank of China (PBOC) implemented a series of strategic monetary policy adjustments throughout the first three quarters of 2024, reflecting a calibrated approach to supporting economic stability, financial market development, and targeted sectors.

1. Medium-Term Lending Facility (MLF) Operations

·The PBOC conducted multiple MLF operations with a stable interest rate of 2.5%in the first half of the year, ensuring adequate liquidity for the financial system.

·In July, the MLF rate was adjusted to 2.3%, signaling a subtle shift toward easing liquidity constraints.

·August and Septembersaw continued operations, maintaining the reduced 2.3% and 2.0%rates, respectively, underscoring the focus on lowering borrowing costs.

2. Loan Prime Rate (LPR) Adjustments

·The one-year LPRremained steady at 3.45%until July, when it was reduced to 3.35%.

·Similarly, the over-five-year LPR, a benchmark for mortgage lending, dropped from 4.20%to 3.85%.

·These reductions aim to alleviate financing costs for businesses and households, particularly in real estate.

3. Targeted Interest Rate Cuts and Reserve Requirement Ratio (RRR) Reductions

·On January 25, the PBOC cut central bank lending rates for rural development and micro and small businesses(MSBs) by 25 basis points, enhancing targeted support.

·The RRR was reduced twice in 2024 (February 5 and September 27), each by 0.5 percentage points, freeing up liquidity for broader economic support.

4. Housing Market Policy Adjustments

·On May 17, a significant step was taken to remove the nationwide mortgage rate floor and lower the minimum down payment ratio for first-time and second-time buyers to 15% and 25%, respectively.

·The PBOC later unified the minimum down payment ratioat 15%for both first and second homes in September, simplifying access to home loans.

·Measures such as reduced personal housing provident fund loan rates further eased burdens on homebuyers.

5. Enhancing Financial Market Connectivity

·The PBOC strengthened Northbound Bond Connect and Swap Connect mechanisms, allowing foreign institutions greater access to Chinese markets and facilitating collateral usage for offshore liquidity arrangements.

·A bilateral currency swap agreementwith Mauritius, valued at RMB 2 billion, underscored China’s commitment to international financial cooperation.

6. Supporting Key Sectors and Inclusive Financing

·In April, the PBOC introduced RMB 500 billion in central bank lending for sci-tech innovation and technological transformation, directly targeting SMEs and technology-driven industries.

·The scope of inclusive elderly care lending was expanded nationwide, ensuring financial support for public welfare elderly care services.

·Programs supporting affordable housingand repurposing unsold properties were launched to stabilize the real estate market.

7. Standing Lending Facility (SLF) Adjustments

·The overnight, 7-day, and 1-month SLF rates were reduced in July and September, marking a cumulative drop of 30 basis points to 2.35%, 2.5%, and 2.85%, respectively.

8. Regulatory and Market Enhancements

·The PBOC issued regulatory notices to optimize over-the-counter (OTC) bond business, strengthen interbank bond market supervision, and streamline foreign exchange processes to bolster efficiency and transparency.

·Revisions to interest rate pricing mechanismsaimed at promoting reductions in existing housing loan rates highlight efforts to optimize debt affordability.

9. Reports and Forward Guidance

·The release of quarterly China Monetary Policy Reports reflected a transparent communication strategy, providing insight into policy rationale and future direction.

·The Monetary Policy Committee's quarterly meetings emphasized a balanced stance—maintaining liquidity stability while addressing structural weaknesses.