Historical Context - From 1949 to 1977, China's monetary policy served as an administrative tool under a unified banking system, lacking market foundations and credit creation mechanisms[3][4]. - Post-1978, the separation of central and commercial banking functions led to an independent monetary policy framework, establishing a dual-layer currency creation mechanism[4][5]. Transition Phases - From 1998 to 2012, a quantity-based control system emerged, with M2 and total credit volume as core targets, driven by non-market interest rates and external pressures[5][6]. - After 2012, the effectiveness of quantity tools diminished, prompting a shift towards price-based monetary policy, with interest rates becoming central to regulation[6][7]. Structural Changes - By 2020, the proportion of new RMB loans in total social financing dropped from 91.9% in 2002 to 57.5%, indicating a shift towards off-balance-sheet financing[7][30]. - The balance of current accounts as a percentage of GDP decreased from around 10% in 2007 to below 3% post-2011, reflecting changes in foreign exchange reserves and monetary policy dynamics[7][34]. Policy Mechanisms - The establishment of a rate corridor in 2015 clarified policy signals, with the SLF as the upper limit and excess reserve rates as the lower limit, enhancing market expectations[9][10]. - As of 2023, the monetary policy framework has been optimized to strengthen the price-oriented function of policy rates, narrowing the rate corridor from 245 basis points to 70 basis points[10][11]. Future Outlook - The price-based framework is expected to deepen, with structural monetary policy tools gaining priority to address financing gaps in emerging sectors like technology and green industries[12][11]. - The focus will shift from total quantity control to structural optimization, emphasizing targeted resource allocation in key areas such as housing and infrastructure[12][11].

Group 1: Report Industry Investment Rating - Not provided in the content Group 2: Core Viewpoints of the Report - In 2025, the liquidity and the central bank's monetary policy stance have become the focus of the market. The new narrative logic of liquidity in the first half of the year may also form the new normal in the second half, including the continuous transformation of the monetary policy framework, the continuous pressure on banks' net interest margins, and the need to balance multiple policy goals [1][3][9] - The policy side still focuses on smoothing the monetary policy transmission mechanism and promoting the decline of the comprehensive social financing cost in the second half of the year, and needs to balance "stable growth" and "risk prevention" [3][4][89] Group 3: Summary According to the Directory 1. The "Unexpected" and "Expected" of the Funding Situation in the First Half of the Year - In the first half of 2025, the funding situation changed from the long - term stable and abundant state in the second half of last year. The first quarter was tight, and the second quarter gradually switched to a stable and balanced state. The change was due to the dynamic switching of policy target priorities and the evolution of the monetary policy framework [11][12] - The first half of the year can be divided into four stages based on factors such as central bank's open - market operations, policy focus switching, and funding rate trends. Each stage has different characteristics in terms of funding rates, central bank's operations, and market supply - demand patterns [15] 2. Some New Narratives of Liquidity in 2025 2.1 Framework "Variation" - The monetary policy framework is further transforming to price - based regulation, clarifying the main policy interest rates and weakening the policy attributes of other prices. The MLF has faded out of its medium - term policy interest rate attribute [36] - The policy aims to smooth the interest rate transmission mechanism, strengthen the effect of deposit interest rate adjustment, and promote the decline of the real financing cost. It also conducts policy communication and expectation guidance with the market in a timely manner, and the structural tools are precisely targeted [34][37] 2.2 The "Actions" and "Inactions" of Monetary Policy - **Supportive Stance Remains Unchanged**: The monetary policy needs to balance multiple goals, and the central bank strengthens communication with the market to correct the market's over - trading expectations of monetary easing [39] - **"Inactions" in the First Quarter**: The central bank's investment was relatively restrained in the first quarter, focusing on preventing capital idling, interest rate risks, and stabilizing the exchange rate, which was also reflected in the statements of the monetary policy meetings [43][45] - **"Actions" and "Inactions" in the Second Quarter**: In the second half of March, the supply - demand pattern of the funding situation improved. The central bank increased its support, but still needed to balance "stable growth" and "risk prevention", which was also reflected in the statements of the monetary policy meetings [47][50] 2.3 Market "Echoes" - **Funding Rates are "Rigid" and Once Faced "Negative Carry"**: In the first quarter, the funding rates were at a high level with high volatility, and the bond market had a prominent "negative carry" phenomenon. The yield curve changed from "bear - flat" to "bear - steep", corresponding to the marginal changes in institutional behavior [53][54] - **Banks' Liability - Side Pressure is Concerned, and Funding Stratification is Weakened**: In the first quarter, the large - scale banks' fund lending decreased, and the liquidity supply - demand contradiction was magnified. In the second quarter, the banks' liability - side pressure was generally controllable, and the funding stratification was mainly seasonally high [69][77] - **The Bond Market Fluctuated More, and Banks Realized Floating Profits at the End of the Quarter**: In the first quarter, banks increased their bond - selling efforts at the end of the quarter to realize floating profits. In the second quarter, the pressure on banks to sell bonds to realize profits was alleviated [81][84] 3. Grasp the New Normal in the Second Half of the Year 3.1 Smooth the Interest Rate Transmission Mechanism and Reduce Banks' Liability Costs - The policy side will continue to smooth the policy interest rate transmission mechanism, enhance financial institutions' independent pricing ability, and strengthen the linkage between asset - side and liability - side interest rate adjustments [89] - Attention should be paid to banks' interest margin pressure, and banks should be guided to maintain reasonable asset returns and liability costs through market - based methods [90] 3.2 Dynamic Balance between "Stable Growth" and "Risk Prevention" - **Coordination of Various Policy Tools**: In terms of quantitative tools, if there is a reserve requirement ratio cut, the third quarter may be a good observation period, with a range of 25 - 50BP. Otherwise, the central bank may increase the investment of outright reverse repurchases, MLF, or restart treasury bond trading operations. In terms of price - based tools, there may be a possibility of an interest rate cut within the year, with a range of 10 - 25BP, but the timing is uncertain [94][95] - **Outlook on Funding and Certificate of Deposit Prices**: It is expected that the high - volatility market in the first quarter will not reappear, and the funding rates may continue the state of low - volatility and rigidity in the second quarter. If the interest rate cut occurs in the second half of the year, it is expected to drive down the certificate of deposit rates; otherwise, they may remain volatile [4]