Monetary Policy Report - 2nd Quarter 2018

The current economic background

In the second quarter of 2018, the PBoC faced many international and domestic challenges.

Since early 2018, the PBoC has initialized a series of policies to curb risk in national financial markets such as cracking down on shadow bank financing and tightening the supervision of asset management. At the same time, the PBoC cut the required reserve ratio (RRR) to mitigate the impact of increasing regulation and help commercial banks move off-balance-sheet loans back to their balance-sheet. Yet, industrial companies are clearly feeling the consequences of the deleveraging policy of the past few quarters. It has become increasingly difficult to raise new funds and repay existing debt, leading to a record number of bond defaults this year.

In consequence, the PBoC is gradually shifting its focus from macroprudential policies to stabilization. Over the past month, the use of the term “deleverage” in official documents issued by the PBoC has been gradually declining.

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