Next steps for monetary policy

On July 4, the Monetary Policy Committee of the People’s Bank of China held its second-quarter regular meeting. Compared with the first-quarter meeting, this meeting introduced some new wording and changes in areas such as the assessment of the situation, the policy stance, and the operational thinking, reflecting a marginal adjustment by the central bank to its evaluation of the current economic and financial environment and the evolution of its monetary policy framework. Overall, in the next step, monetary policy may become more proactive, practical, and targeted.

The most notable change in the second-quarter meeting lies in a new assessment of domestic and external economic conditions. In terms of the external environment, the first-quarter meeting described it as “the impact of changes in the external environment is deepening,” while the second quarter upgraded it to “the external environment is more complex and changeable,” and it also clearly incorporated “frequent occurrence of trade frictions.” From “impact deepening” to “more complex and changeable,” and from the general “changes” to the specific “trade frictions,” this change reflects the central bank’s high level of vigilance regarding the escalation of trade barriers in the Trump 2.0 era. Judgments such as weak growth momentum in the world economy, differentiated performance among major economies, and uncertainty about the inflation trend and adjustments to monetary policy are basically maintained.

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