PBOC Pledges RRR Cuts, RMB Push to Boost Growth, Liquidity

The People's Bank of China (PBOC) announced on December 12 that it will continue to maintain a moderately loose monetary policy to support economic growth and stabilize price levels. The central bank emphasized the importance of lowering social financing costs and improving policy transmission to the real economy, with a focus on backing small and micro-enterprises, technological innovation, and expanding domestic demand according to PBOC statements. In parallel, it reiterated its commitment to the internationalization of the renminbi (RMB), outlining plans to build a multi-channel cross-border RMB payment system as reported by financial analysts.

The PBOC also highlighted the need to balance policy intensity and timing, utilizing tools such as reserve requirement ratio (RRR) cuts and interest rate reductions to maintain adequate liquidity. This comes amid broader structural reforms in the financial sector aimed at enhancing efficiency and market resilience according to recent reports. The central bank stressed that a stable RMB exchange rate remains a key priority, ensuring it stays within a reasonable and balanced range.

Recent developments in the offshore RMB market reflect a gradual recovery, according to Standard Chartered. The bank's Renminbi Globalization Index (RGI), a proprietary measure of RMB international usage, showed a rebound in September and October 2025 after a dip in August. Offshore deposits, Dim Sum bonds, and foreign holdings of onshore RMB assets were key contributors to the rebound as the RGI shows.

Policy Tools and Market Impact

The PBOC plans to flexibly deploy monetary instruments to manage liquidity and support economic activity. By optimizing structural policy tools and enhancing fiscal coordination, the central bank aims to direct credit toward priority areas such as domestic demand and technological advancement. This approach underscores the PBOC's commitment to maintaining stable growth while managing inflationary pressures according to central bank analysis. Analysts note that the emphasis on small and micro-enterprises signals a broader effort to stimulate grassroots economic activity and bolster employment.

The RMB's international usage has seen renewed momentum, supported by government initiatives and market dynamics. Standard Chartered reported that the "deposit" component of its RGI rebounded after four consecutive months of declines, partly driven by increased offshore RMB bond issuance. The bank also noted a rise in equity holdings by overseas entities, contributing to a 43-month high in onshore RMB assets as Standard Chartered's data shows.

Broader Financial Reforms and RMB Globalization

The PBOC's strategy includes advancing high-level financial openness and global governance reforms, while safeguarding national financial security. The central bank emphasized the need to promote multilateral and bilateral currency cooperation, alongside the development of digital RMB systems. These efforts align with broader goals to enhance the RMB's role in international trade and finance as outlined in official documents. The 15th Five-Year Plan (2026–30) proposals further support these ambitions, calling for expanded RMB capital account openness and a risk-managed cross-border RMB payment system according to government planning.

China's central bank also continues to optimize its international reserve structure, with a 13th consecutive month of gold purchases in November 2025. This trend, observed amid rising gold prices and a depreciating US dollar, signals a strategic shift to reduce reliance on US Treasuries and diversify reserves. Analysts suggest that this aligns with the PBOC's broader objective of enhancing the RMB's credibility and international appeal as market analysts observe.

Analyst Outlook and Market Reactions

Markets have reacted cautiously to the PBOC's policy stance, with expectations of further RRR cuts or rate reductions. The central bank's focus on liquidity management and lower financing costs is seen as a positive signal for businesses and households, particularly in the small and micro-enterprise sectors. However, concerns remain about external volatility, including shifting trade dynamics and geopolitical tensions, which could affect the RMB's stability as financial analysts note.

Standard Chartered's analysis of the RGI suggests that the RMB's global usage is on an upward trajectory, supported by increased offshore activity and policy-driven initiatives. The bank noted that Hong Kong's role as a global offshore RMB hub is expected to expand, furthering the RMB's integration into international financial systems as Standard Chartered reports. Meanwhile, the PBOC's digital RMB development plans are anticipated to provide a more secure and efficient framework for cross-border transactions, enhancing the currency's utility and appeal.

Risks and Challenges Ahead

Despite the PBOC's forward-looking policies, risks remain. External factors such as the US Federal Reserve's policy path and global trade developments could influence capital flows and exchange rate stability. Internally, the central bank faces the challenge of balancing structural reforms with the need to maintain confidence in the RMB's role in global markets according to expert analysis.

Analysts warn that while the PBOC's emphasis on financial openness and RMB internationalization is a long-term positive, short-term volatility could test market confidence. Continued coordination between fiscal and monetary policy, alongside targeted support for key sectors, will be critical to sustaining growth and maintaining stability as policy experts observe.