China's Central Bank Faces Challenges in Stimulating Economy

The People's Bank of China struggles to balance monetary easing with risks of financial instability, weak credit demand, and a depreciating yuan.

The People's Bank of China (PBOC) has adopted a 'moderately loose' monetary policy stance but faces limited room for further rate cuts and reserve requirement reductions.
Weak consumer and business confidence has led to a significant decline in loan demand, with new yuan loans dropping over 20% in 2024 compared to the previous year.
The central bank suspended treasury bond purchases due to asset scarcity, highlighting resource constraints and concerns about the yuan's depreciation.
Analysts warn that further monetary easing could create financial market bubbles, hurt bank profitability, and increase capital outflow risks.
Despite challenges, the PBOC is expected to implement additional rate and reserve requirement cuts in 2025 to support growth, though its capacity for aggressive action is constrained.