Decoding the central bank press conference: Eight measures implemented, how far are we from comprehensive reserve requirement and interest rate cuts?

``` On the afternoon of January 15, 2026, at 3 PM, a press conference held by the State Council Information Office became the focal point for capital markets. On the same day that the December 2025 financial data was released, the central bank delivered a “combination punch.” Facing the market’s demand for liquidity, the central bank did not directly adjust OMO (open market operation) rates but instead chose a more targeted path—**structural rate cuts**. At the press conference, the People’s Bank of China announced the launch of eight structural monetary policy measures, and made it clear: **there is still room for further reserve requirement ratio (RRR) cuts and interest rate cuts this year**. ## Structural “rate cuts” take the lead The biggest news at the press conference was the adjustment of “prices.” The central bank announced a **0.25 percentage point cut in rates for various structural monetary policy tools**. Specifically, the one-year rate for various relending tools will be reduced from 1.5% to 1.25%, with other maturity rates adjusted accordingly; the rediscount rate will decrease from 1.75% to 1.5%. This is not an across-the-board rate cut, but its signaling effect should not be overlooked in the current economic climate. According to **Huachuang Securities**, historically, such structural tool rate cuts in December 2021 and January 2024 were also made independently when OMO or MLF rates remained unchanged. From the perspective of cost reduction, by the end of Q3 2025, the balance of structural monetary policy tools stood at around 5.4 trillion yuan. **China Galaxy Macro estimates that this rate cut could save banks about 13.5 billion yuan in costs.** The **Guotai Junan Macro Team** believes this is a “structural rate cut balancing both internal and external needs.” On the internal side, prices related to domestic demand remain weak and require policy support. On the external side, divergence in the U.S. economy has led to persistently high U.S. Treasury yields. By adopting structural rate cuts, the central bank **“both effectively supports the resilience of the domestic economy and allows the trend of RMB appreciation to continue.”** ## Eight measures implemented Beyond the lower rates, there is also increased quantity. The central bank introduced eight specific measures at this press conference, focusing on expanding domestic demand, technological innovation, and supporting small and micro enterprises. According to an analysis by **Huatai Securities**, the central bank increased relending quotas by about **1.1 trillion yuan** this time. How will these funds be allocated? 1. **Agriculture, small businesses, and private enterprises:** The relending and rediscount quotas for agriculture and small businesses will be integrated and increased by 500 billion yuan; a separate relending quota for private enterprises is established at 1 trillion yuan (included in the integrated new and existing quota). 2. **Technological innovation:** The relending quota for technological innovation and technological transformation is increased by 400 billion yuan, bringing the total to 1.2 trillion yuan. 3. **Bond support:** Tools for risk-sharing in science and technology innovation and private enterprise bonds are merged, with a relending quota of 200 billion yuan. **Zhong Linan of GF Macro** pointed out that implementing structural tool reforms during the peak of Q1 credit expansion maximizes the structural adjustment capability of monetary policy. Integration of usage and merging of tools is aimed at “reducing policy operation costs and avoiding resource redundancy.” It is noteworthy that in the real estate sector, policy has further relaxed. The central bank and the Financial Regulatory Administration have announced a **lowering of the minimum down payment ratio for commercial property mortgages to 30%**. According to **Huatai Securities**, this will help marginally improve demand for commercial property and promote inventory destocking in the commercial real estate market. ## How far off are broad RRR and rate cuts? With structural easing measures in place, the market is more concerned with when the “big move” of broad-based easing will happen. At the press conference, the central bank offered very clear forward guidance. An official indicated: **“Regarding RRR and rate cuts, there is still some room left this year.”** **China Galaxy Macro** interprets this as sending a clear signal of monetary easing. The central bank indicated that the current average statutory reserve requirement ratio for financial institutions is 6.3%, and **“there is still room for further cuts.”** As for constraints on rate cuts, they seem to be abating. The central bank noted that **factors such as the exchange rate and net interest margin, which could limit comprehensive rate cuts, have all improved**. - **On the exchange rate:** The RMB is relatively stable, the dollar is in a rate-cutting cycle, and the exchange rate does not present a strong constraint. - **On net interest margin:** Since 2025, banks’ net interest margins have shown signs of stabilizing, and a large-scale repricing of long-term deposits is due in 2026. On this point, **GF Macro** provides a rational forecast: though constraints on RRR and rate cuts are easing, in practice, the conditions for such moves in 2026 may mirror those of 2025—that is, **“kept in reserve to be used when really needed”**—and the market shouldn’t over-bet on short-term changes. **China Galaxy Macro** predicts more specifically: **“A 50BP RRR cut in Q1 still looks likely”** to ensure liquidity and support government bond issuance. As for broad rate cuts, the timing still isn’t right, but 1–2 rate cuts totaling 10–20BP are expected for the whole year. ## New Policy Trend: DR001 as new benchmark? There was another detail in the press conference that is easy to overlook but highly professional. **GF Macro** noted that, for the first time, the meeting expressly proposed “guiding the overnight rate to operate near the policy rate level.” Previously, the central bank often referred to “guiding market rates close to policy rates,” and the market usually took “market rate” to mean DR007 (7-day repo rate). This time, the central bank specifically referred to **DR001 (overnight rate).** What does this mean? According to Huachuang Securities, since the 2024 monetary policy framework reforms, the central bank’s willingness and ability to manage the short end have significantly increased. Explicitly targeting the overnight rate **“helps stabilize expectations in the money market.”** Going forward, as high-interest deposits return, the degree of funding tightening may be more manageable. ## “Spring Rally” for Bond and Stock Markets What does the policy breeze mean for various asset classes? - **Bonds:** According to **Huachuang Securities**, the conference mentioned that the 10-year government bond yield has recently stabilized at about 1.8%-1.9%. The central bank believes the “bond market is operating smoothly and healthily.” This means regulatory acceptance of a higher trading range, and the central bank’s “target range” may adjust dynamically with the market. **China Galaxy** forecasts that the 10-year government bond yield will stay between 1.6% and 1.9%, generally trending high early and lower later. - **Stocks:** **China Galaxy Macro** believes investing in China’s stock market is likely to bring excess returns, and emphasizes the “spring rally” investment opportunity. Their reasons: another monetary easing signal from the central bank; RMB appreciation drives risk premiums down; and capital markets encourage household deposit reallocation. - **Exchange Rate:** According to **Morning FX**, December’s forex settlement data “exploded” to a historical high, with the RMB CFETS index rising. **China Galaxy** predicts the RMB exchange rate will steadily and moderately appreciate in 2026, approaching 6.9 by the end of the year. ## A Promising Start for the Economy Ahead 2026’s monetary policy has kicked off with a “structural rate cut.” As **Guotai Junan** puts it, this is an operation "balancing both domestic and external equilibrium." By lowering structural tool interest rates and expanding their quotas, the central bank is taking the lead in stabilizing growth and adjusting structure, while clearly leaving room for broad RRR and rate cuts—a reserve of tools to address future uncertainties. With proactive fiscal policy and highly coordinated monetary policy, a promising start for China’s economy in 2026 is to be expected. Risk Disclaimer The market involves risk, and investment requires caution. This article does not constitute personal investment advice nor does it consider the specific investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. If you invest based on this article, you do so at your own risk. ```