PBOC likely to hold monetary stance

In June, the People's Bank of China (PBOC) allowed several of the country's retail lenders to pare down their mandatory capital cushions. This move to expand liquidity in the credit market is just one of several recent "mini-adjustments" made by central authorities. Some have interpreted this step as a sign that broader monetary policy shifts could be just around the corner. In actuality, the central bank does not seem to be headed in such a direction.

The PBOC's targeted reserve cuts were meant to steer more funding into the real economy and make it easier for enterprises to secure financing. Such efforts, however, have not been accompanied by steps to reduce borrowing costs.

The public should not read too much into the PBOC's latest moves, especially when the central bank has historically been reluctant to implement large-scale changes to its monetary stance.

Right now, banking authorities should focus on strengthening supervision over credit policies to make sure that lenders don't overextend themselves.