Signals from the central bank's fourth-quarter monetary policy report: The probability of a short-term interest rate cut is relatively low

Core Views

Event: On February 10, 2026, the central bank will release the monetary policy implementation report for the fourth quarter of 2025.

The importance of "promoting economic growth and reasonable price recovery" has been elevated. In the Q3 monetary policy, "promoting reasonable price recovery" was placed as the fourth sentence in the important work section of the summary, while in the Q4 monetary policy, it was moved to the second sentence, right after the general requirement of "moderately loose monetary policy," indicating a significant increase in importance.

The probability of a short-term interest rate cut is low. The phrase "promoting a decrease in the comprehensive financing costs of society" in Q3 monetary policy was changed to "promoting the low-level operation of comprehensive financing costs of society" in Q4 monetary policy, indicating a further decrease in the demand for lowering real financing costs. The central bank will be more cautious in using quantity-based loose monetary tools in the next phase. The task of reducing financing costs will mainly be achieved through "orderly expanding the coverage of the explicit comprehensive financing cost work for corporate loans." The explicit range of comprehensive financing costs for corporate loans will be promoted from certain pilot regions and financial institutions to nationwide, facilitating enterprises to compare and choose different loan options.

Emphasis on the regulatory role of the exchange rate. Although "utilizing the exchange rate to adjust the macro economy and the automatic stabilizer function of the balance of payments" was previously included in the monetary policy implementation report, it has been added to the summary section in Q4 monetary policy, indicating a marginal increase in importance. In 2026, against the backdrop of continued loosening of fiscal discipline in the U.S. and Japan, our constrained fiscal policy ensures the foundation for the appreciation of the Renminbi.

The moderate appreciation of the Renminbi is beneficial for balancing trade activities, avoiding the unilateral expansion of trade surpluses that could affect economic and trade relations; on the other hand, the appreciation of the Renminbi is conducive to the return of funds to the domestic market, injecting incremental liquidity into the capital market and providing positive support for the internal circulation of the economy; additionally, against the backdrop of overall rising prices of bulk commodities, moderate appreciation will to some extent hedge against imported inflation and alleviate the cost pressure of raw materials on enterprises.

The Importance of "Promoting Economic Growth and Reasonable Price Recovery" Has Been Elevated

In Q3 monetary policy, "promoting reasonable price recovery" was placed as the fourth sentence in the important work section of the summary, while in Q4 monetary policy, it was moved to the second sentence, right after the general requirement of "moderately loose monetary policy," indicating a significant increase in importance.

The Probability of a Short-Term Interest Rate Cut is Low

In Q3 monetary policy, "promoting a decrease in the comprehensive financing costs of society" was changed to "promoting the low-level operation of comprehensive financing costs of society," indicating a further decrease in the demand for lowering real financing costs.

Q4 monetary policy mentions "the internal and external economic and financial situation and the operation of financial markets, grasping the strength, rhythm, and timing of policy implementation," which also points to the central bank being more cautious in using quantity-based loose monetary tools in the next phase, needing to consider the domestic and international situation comprehensively.

The task of reducing financing costs will mainly be achieved through "orderly expanding the coverage of the explicit comprehensive financing cost work for corporate loans." The explicit range of comprehensive financing costs for corporate loans will be promoted from certain pilot regions and financial institutions to nationwide, facilitating enterprises to compare and choose different loan options The operational characteristics of focusing on structure rather than total volume can be seen in the expansion and integration of structural monetary policy tools carried out by the central bank since Q4 2025.

In the Q4 monetary policy report, it was mentioned that "by the end of 2025, technology loans, green loans, inclusive loans, elderly care industry loans, and digital economy industry loans will grow by 11.5%, 20.2%, 10.9%, 50.5%, and 14.1% year-on-year, respectively, all maintaining double-digit growth, continuing to exceed the overall loan growth rate." In the future, during the process of injecting liquidity, the central bank will pay more attention to tool coordination and precise drip irrigation, with credit quotas tilted towards key areas such as medium to long-term and high value-added sectors, further supporting the funding needs for technological innovation at the start of the "14th Five-Year Plan."

Emphasis on the Regulatory Role of Exchange Rates

Although "utilizing the exchange rate to adjust macroeconomic and international balance of payments as an automatic stabilizer" was previously included in the monetary policy implementation report, its importance has been marginally elevated by being added to the summary section in the Q4 monetary policy report.

In 2026, against the backdrop of continued loosening of fiscal discipline in the U.S. and Japan, China's constrained fiscal policy ensures the foundation for the appreciation of the renminbi.

The moderate appreciation of the renminbi is beneficial for balancing trade activities, avoiding the unilateral expansion of trade surpluses that could affect economic and trade relations; on the other hand, the appreciation of the renminbi is conducive to the return of funds to the domestic market, injecting incremental liquidity into the capital market and providing positive support for the domestic economic cycle.

Moreover, in the context of overall rising prices of bulk commodities, moderate appreciation will to some extent hedge against imported inflation and alleviate the cost pressure of raw materials on enterprises.

Viewing Deposit Migration from the Perspective of Overall Liquidity

In Column 3 of the Q4 monetary policy report, "Viewing Liquidity from the Perspective of the Merger of Asset Management Products and Bank Deposits," the central bank clarified that the "loss" of deposits and the increase in asset management products are a mutually exclusive relationship. On one hand, the total liquidity of society and the financial market has not decreased; on the other hand, most of the underlying assets of asset management products are also interbank deposits and certificates of deposit, which have limited impact on the bond market.

Expansion of Supported Service Consumption Areas

In the Q3 monetary policy report, the scope of service consumption and elderly care re-loans mentioned key areas such as accommodation and catering, cultural and entertainment, education, resident services, and tourism. In the Q4 monetary policy report, the supported areas were further expanded to include health industry, digital consumption, green consumption, and retail consumption sectors.

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