The latest signal from the central bank: Prices are showing positive marginal changes, and the coordination between monetary policy and fiscal policy will continue to strengthen

On February 10, the People's Bank of China released the "Monetary Policy Implementation Report for the Fourth Quarter of 2025," providing new judgments on key issues such as the next phase of monetary policy, interest rate and exchange rate policies, and the coordination between monetary and fiscal policies.

In terms of monetary policy, the latest monetary policy report emphasizes the need to continue implementing a moderately accommodative monetary policy. It considers promoting stable economic growth and a reasonable rebound in prices as important factors in monetary policy. Based on domestic and international economic and financial conditions and the operation of financial markets, it aims to grasp the intensity, rhythm, and timing of policy implementation. Flexibly and efficiently utilize various policy tools such as reserve requirement ratio cuts and interest rate reductions to maintain ample liquidity and relatively loose social financing conditions, guiding reasonable growth in the total financial volume and balanced credit distribution, ensuring that the growth of social financing scale and money supply aligns with economic growth and the expected target for the overall price level.

Industry experts indicate that the moderately accommodative monetary policy from the previous year has a cumulative effect, and the effects of existing policies will continue to manifest. In early 2026, the central bank will introduce a package of monetary and financial measures to support the high-quality development of the real economy, and these incremental policies will synergize with existing policies to further create a suitable monetary and financial environment for stable growth in the real economy and a reasonable rebound in prices.

Guiding Banks to Stabilize Credit Support

Regarding liquidity and credit, the report states that it is necessary to strengthen the analysis and monitoring of liquidity supply and demand in the banking system and changes in financial markets, comprehensively utilize various monetary policy tools, and maintain ample liquidity. Guide banks to stabilize their credit support, ensuring reasonable growth in the total financial volume, and aligning the growth of social financing scale and money supply with economic growth and the expected target for the overall price level.

On interest rates, the report indicates that it is essential to deepen the reform of interest rate marketization and smooth the transmission channels of monetary policy. Improve the mechanisms for forming, regulating, and transmitting market-oriented interest rates, and leverage the guiding role of the central bank's policy interest rates. Guide short-term money market interest rates to operate smoothly around the central bank's policy interest rates. Strengthen the execution and supervision of interest rate policies, continuously conduct on-site inspections and evaluations of financial institutions' adherence to interest rate policies and self-discipline agreements, and enhance banks' ability to set prices rationally and independently. Better utilize the role of the interest rate self-discipline mechanism, effectively implement various interest rate self-discipline initiatives, and maintain competitive order in the banking market. Continue to reform and improve the Loan Prime Rate (LPR), focusing on enhancing the quality of LPR quotations to more accurately reflect the level of interest rates in the loan market. Urge financial institutions to adhere to the principle of risk pricing and clarify the relationship between loan interest rates and market interest rates such as bond yields.

Regarding exchange rates, the report states that it is necessary to steadily deepen the reform of exchange rate marketization, improve a managed floating exchange rate system based on market supply and demand and referencing a basket of currencies, uphold the decisive role of the market in exchange rate formation, and utilize exchange rate adjustments as a macroeconomic and international balance of payments automatic stabilizer.

Prices Show Positive Marginal Changes

When discussing the next phase of monetary policy, the report emphasizes that a reasonable rebound in prices should be an important consideration in monetary policy. Price movements are showing positive changes Data shows that in December 2025, the CPI rose by 0.8% year-on-year, reaching the highest level since March 2023, with the annual CPI remaining flat compared to the previous year; the core CPI, excluding food and energy, increased by 1.2% year-on-year, maintaining above 1% for four consecutive months; the PPI decreased by 1.9% year-on-year, with the decline narrowing by 1.7 percentage points from the low point in July 2025, and has risen for three consecutive months on a month-on-month basis.

Industry experts indicate that analyzing the price situation also requires observing its structural characteristics. Last year, prices operated at a low level, with low prices in food and transportation energy significantly impacting this, which is related to supply and demand relationships and the input effect of falling international oil prices. It should also be noted that in some areas reflecting high-quality economic development and the optimization and upgrading of residents' consumption structure, the price level has generally stabilized and risen. Among the CPI sub-indicators last year, education, culture, and entertainment rose by a cumulative 0.8%. At the beginning of 2026, the State Council's executive meeting deployed a package of policies to promote domestic demand through fiscal and financial collaboration, and relevant departments have successively introduced specific policy measures, all of which will support domestic demand growth and benefit the virtuous cycle of supply and demand in the real economy, with prices expected to further rise moderately.

Continuous Strengthening of Coordination Between Monetary Policy and Fiscal Policy

The monetary policy report for the fourth quarter proposed that the coordination between monetary policy and fiscal policy can synergistically release policy effects.

The report pointed out that monetary policy and fiscal policy mainly strengthen coordination through three models. First, the People's Bank of China maintains ample market liquidity through open market operations to support the smooth and efficient issuance of government bonds. Second, through the "re-lending + fiscal subsidies" approach, it collaborates from both ends of credit market supply and demand to optimize financial resource allocation. Third, through guarantees and other credit enhancement methods, it jointly shares the risk costs of loans and bonds, enhancing the risk appetite of financial institutions and increasing financing support for enterprises. Among these, the second and third collaborative methods focus on structural optimization.

In January 2026, the People's Bank of China and the Ministry of Finance announced a package of policy measures to continue collaborating to expand domestic demand. This includes: first, the "re-lending + subsidy" policy in the equipment renewal sector; second, the "re-lending + subsidy" policy supporting small and micro enterprises and the private economy; third, the "re-lending + subsidy" policy supporting consumption stimulation; fourth, the risk-sharing policy supporting private enterprises in issuing bonds.

The report stated that in the next phase, the People's Bank of China will continue to strengthen the coordination between monetary policy and fiscal policy, fully leverage the synergistic effects of policies, amplify policy effectiveness, guide social capital to participate in promoting consumption and expanding investment, and jointly support stable growth and structural adjustment, working together to promote high-quality economic development.

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