PBoC: firmly correct pro-cyclical behavior in the market

PBoC: firmly correct pro-cyclical behavior in the market

The People's Bank of China (PBoC) is taking proactive measures to address pro-cyclical behavior in the financial market, as indicated by recent data and policy actions. In July 2025, the PBoC reported a significant contraction in yuan loans, falling short of analysts' forecasts by a substantial margin. This contraction, amounting to 50 billion yuan ($6.97 billion), was a notable deviation from the 2.24 trillion yuan in June [1].

The PBoC's actions come amidst broader economic challenges, with July typically seeing lower loan disbursements due to banks' efforts to meet quarterly targets. However, the recent data indicates a more pronounced slowdown, reflecting the central bank's efforts to correct pro-cyclical behavior. The PBoC's January-July data, which was used to calculate the July figures, showed a significant decrease in new yuan loans, underscoring the bank's focus on stabilizing the market [1].

The yuan's performance in July also highlighted the PBoC's active management of the currency. Despite disappointing factory and retail data, the yuan managed to gain 0.3% against the dollar in August, thanks to the PBOC's interventions and the 90-day extension of the US-China tariff pause. The central bank's efforts to keep the spot yuan trading within a narrow range demonstrate its commitment to balancing policy targets with market pressures [2].

The broader implications of the PBoC's actions extend to the global currency markets. The yuan's latest slide underscores the sensitivity of global currency markets to data from China and the US. The PBoC's interventions and the dollar's resilience have significant impacts on Asian currency and bond markets, signaling a cautious approach to risk and cost [2].

In summary, the PBoC's recent actions reflect its commitment to correcting pro-cyclical behavior in the market. By managing loan disbursements and currency fluctuations, the central bank is addressing broader economic challenges and signaling a cautious approach to risk and cost. These efforts are crucial for maintaining stability in the financial market and supporting China's economic recovery.

References:
[1] https://www.investing.com/news/economic-indicators/china-july-bank-loans-shrink-50-billion-yuan-well-below-forecasts-4187444
[2] https://finimize.com/content/chinas-yuan-slips-as-weak-data-pressures-policy-makers