Vi e w p o i n t | 12 Nov 2025 09:59:01 ET │ 10 pages China Economics Little to Expect on Cyclical Policies – Takeaways from the PBoC's MPR for 25Q3 CITI'S TAKE The PBoC published its Monetary Policy Report for 25Q3 yesterday (PBoC, Nov 11th). Unsurprisingly, there is limited new information on near-term policies with growth on track to achieve the target and year-end policies meetings ahead of us. The PBoC instead focused more on monetary policy transmissions as it details its focus on interest rate system ...

Core Viewpoint - The People's Bank of China (PBOC) emphasizes the implementation of a moderately loose monetary policy to support economic growth and stabilize financial conditions, while also addressing the financing needs of small and medium-sized enterprises [3][10]. Summary by Sections Monetary Policy Execution - The PBOC's report highlights that the financial total has grown rapidly, with the social financing scale and broad money supply (M2) increasing by 8.7% and 8.4% year-on-year as of September [5][6]. - The report indicates that the current social financing cost is low, with new corporate loans and personal housing loan rates decreasing by approximately 40 basis points and 25 basis points year-on-year, respectively [5]. Economic Outlook - The report asserts that the national economy is progressing steadily, with a solid foundation to achieve the annual growth target of around 5% [6][10]. - It notes that the central government's macroeconomic policies are effectively promoting consumption and stabilizing prices, contributing positively to economic recovery [6]. Financial Indicators - The report stresses the importance of social financing scale and money supply as more comprehensive indicators compared to bank loans for observing financial totals [2][6]. - It also mentions that the current RMB loan balance has reached 270 trillion yuan, while the social financing scale stands at 437 trillion yuan [5]. Monetary Policy Direction - The PBOC plans to maintain a relatively loose social financing condition and implement a moderately loose monetary policy, balancing short-term and long-term economic needs [10][11]. - The report emphasizes the need to enhance financial support for consumption and small enterprises, as well as to explore policies that help individuals restore credit [11]. Financial Market Dynamics - The report discusses the relationship between base money and broad money, indicating that changes in base money can influence the creation of broad money, but they are not directly correlated [7]. - It highlights that the channels for bank money creation are becoming more diversified, with both indirect and direct financing methods playing a role in supporting the real economy [7]. Interest Rates and Resource Allocation - The report outlines the significance of interest rates and their comparative relationships in guiding resource allocation within the economy [8]. - It explains that changes in interest rates can lead to shifts in capital flows towards higher return assets, impacting various financial markets [8][9].

Core Viewpoint - The People's Bank of China (PBOC) emphasizes the importance of maintaining a moderately loose monetary policy to support economic growth and stabilize financial conditions, while also addressing the financing needs of small and medium-sized enterprises [2][12]. Group 1: Monetary Policy and Economic Outlook - The PBOC's report indicates that the national economy is progressing steadily, with a solid foundation to achieve the annual growth target of around 5% [5][6]. - The report highlights that the monetary policy will focus on maintaining relatively loose social financing conditions and enhancing financial support for consumption [2][12]. - As of September, the total social financing stock and broad money supply (M2) grew by 8.7% and 8.4% year-on-year, respectively [4]. Group 2: Financial Indicators and Trends - The report notes that the cost of social financing remains low, with new corporate loans and personal housing loan rates decreasing by approximately 40 and 25 basis points year-on-year, respectively [4]. - The RMB against the USD appreciated by 1.2% year-to-date, with the loan balance reaching 270 trillion yuan and the total social financing stock at 437 trillion yuan [4]. - The report stresses the need to view financial total indicators comprehensively, suggesting that social financing scale and money supply are more representative than bank loans alone [4]. Group 3: Financial System and Risk Management - The report discusses the relationship between base money and broader money supply, indicating that changes in base money can influence the creation of broad money, but they are not directly correlated [8]. - It emphasizes the importance of a diversified approach to bank money creation, where both loan issuance and bond purchases can support credit expansion [8]. - The report outlines the necessity of enhancing macro-prudential policies to mitigate financial risks and maintain market stability [14].

Core Insights - The report evaluates whether the bond market has fallen out of a safety margin due to high risk appetite and significant changes in the relative performance of major asset classes [2][7] - The analysis is conducted from both internal interest rate assessments and cross-asset pricing perspectives [7] Internal Interest Rate Assessment - The policy interest rate provides a "safety margin" with the 10-year government bond yield and the 7-day reverse repo rate spread rising to 38 basis points, close to the year’s high [8][9] - The yield curve shows a steepening characteristic in the short term, while remaining relatively flat in the long term, with most spreads above the 70th percentile for the year [12][13] - The downward movement of bond yields aligns with other interest rates, with a central tendency of around 70 basis points for various rates since 2024 [14] Cross-Asset Pricing Assessment - The bond-stock pricing ratio is reverting towards the 3-year average, indicating a recovery in bond allocation value [21] - The current 10-year government bond yield is at the 13th percentile, while commodity prices are mostly between the 0-20th percentiles, suggesting a close pricing match [23] - Compared to high-stickiness asset prices, bonds have fallen out of a certain safety margin, as real estate and durable goods prices are near their lowest points since 2021 [23] - The bond-loan pricing ratio has shown some recovery, with the 5-year government bond yield returning to a central channel level [24] - The comparison with rental yields has slightly improved, with the 30-year government bond yield recovering to a positive spread over urban residential rental yields [31] Overall Conclusion - The bond pricing has shown a degree of recovery, particularly in the year-to-date perspective, with several pricing indicators returning to their yearly highs. However, market sentiment remains weak, and technical signals indicate a bearish trend, suggesting that buying opportunities may require patience until market sentiment fully releases [33]