〔Day Digest〕China's Central Bank Reaffirms Moderately Loose Policy; US CPI in Focus

Central Bank Q2 Report: Accommodative Policy Maintained

The People's Bank of China (PBOC) released its Q2 2026 monetary policy report, reiterating a moderately loose policy stance ^[1]. The report noted that GDP grew 4.7% year-on-year in H1 ^[1]. It emphasized maintaining ample liquidity in the banking system and reasonable growth in total financing ^[1]. Social financing and M2 growth rates remain above nominal GDP growth, indicating a relatively loose monetary and financial environment ^[2]. The PBOC plans to introduce pragmatic incremental policies and strengthen counter-cyclical adjustments to support stable growth and high-quality development ^[3].

Policy Operations and Transmission

The PBOC will smoothly and orderly promote reform of the monetary policy operational framework, including gradually increasing the frequency of overnight reverse repurchase operations to enhance transmission of policy rates to market rates ^[4]. It will strengthen enforcement of interest rate policies and conduct on-site assessments of financial institutions' pricing capabilities ^[5]. The report also highlighted efforts to diversify loan pricing benchmarks and reduce financing costs ^[5]. Additionally, the PBOC downplayed the focus on loans as a single financing channel, advocating a combined view of loans and bond financing, noting that H1 saw corporate bond and equity net financing of 2.4 trillion yuan ^[6].

Financial Support and Market Reforms

Monetary policy will continue to support key areas such as domestic demand expansion, technological innovation, and small and medium-sized enterprises ^[7][8]. The PBOC will utilize structural tools and enhance financial services for the 'five major articles' ^[7]. It also supports more eligible overseas entities to issue panda bonds ^[9]. The bank will continue to implement stock repurchase and increase lending, with contracts exceeding 390 billion yuan signed as of end-June ^[10].

Financial Stability and Risk Prevention

The PBOC emphasized expanding macro prudential management and financial stability functions, innovating financial tools to maintain smooth market operations ^[11][12]. It will strengthen supervision of systemically important institutions and broaden additional regulatory coverage to the non-banking sector ^[11]. The report also mentions improving the deposit insurance fund and financial stability guarantee fund mechanisms ^[11].

External and Market Context

According to the PBOC, policy adjustments by major overseas central banks are expected to be relatively moderate this cycle, with potential spillover effects being smaller than in the past ^[13]. In the US, July CPI data due later today is seen as a key test for a September Fed rate hike, with market expectations for a 0.1% headline and 0.2% core monthly increase ^[14]. Asian markets rallied on strong tech earnings, with Korea's KOSPI rising 5% ^[15]. Separately, China's fiscal asset allocation platform saved nearly 1.6 billion yuan in budget funds as of June 2026 ^[16], and Southern Grid electricity load hit a new record on August 11 ^[17].