The People’s Bank of China (PBOC) released its Second Quarter 2026 Monetary Policy Implementation Report on August 12, featuring a special column focused on monetary policy adjustment dynamics among major overseas economies. The report noted that driven by factors including Middle East geopolitical conflicts, international crude oil and commodity prices surged rapidly at one point, with major economies broadly facing imported inflation pressures and overseas central banks pivoting their policy stances. As of end-July, the European Central Bank and Bank of Japan had already initiated rate hikes, the Federal Reserve held rates steady but signaled a hawkish tilt, and some emerging market economies were also trending toward tightening.
The report assessed that this round of monetary policy adjustments by major economy central banks is expected to be relatively mild, with potentially smaller shocks to the global economy and financial markets than in previous episodes.
Imported Inflation Pressures Emerge
Since the beginning of this year, tensions in the Middle East have driven international oil prices higher, pushing up energy and chemical product prices across countries and gradually transmitting to downstream products. Meanwhile, the AI investment boom has boosted demand in sectors such as semiconductors and electric power, with rising product prices further elevating the inflation baseline. Additionally, commodity inflation pressures from higher tariffs have been particularly pronounced in the United States.
With multiple factors converging, inflation levels across major global economies have generally risen due to external supply shocks. Against this backdrop, major overseas central banks have implemented or signaled monetary policy adjustments. As of end-July, among major developed economies, the European Central Bank and Bank of Japan had already taken rate hike actions; the Federal Reserve held rates steady but signaled a hawkish tilt; and some emerging market central banks had also raised rates or trended toward tightening.
This round of overseas monetary policy adjustments exhibits clear differentiation. Some central banks adopted “preventive rate hikes” at the earliest signs of inflation to anchor inflation expectations and safeguard central bank credibility. Some economies rolled out fiscal policy packages following the outbreak of Middle East geopolitical events to cushion the impact of rising oil prices on economic growth, creating more room for monetary policy to focus on achieving price stability objectives. Other central banks face difficult trade-offs between controlling inflation and stabilizing employment, while also bearing external or political pressures, making decisions more challenging—these have temporarily opted to hold steady and maintain a wait-and-see approach.
Why This Round’s Shock May Be Smaller Than Previous Episodes
The report explained its assessment that this round of adjustments will likely be relatively mild from two dimensions.
First, the intensity of this round’s energy shock is moderating, meaning rate hikes need not be excessively large. While energy prices have risen, no supply disruptions have occurred. In recent years, major economies have enhanced energy structure resilience through new energy transitions, energy supply diversification, and increased crude oil reserves, helping to buffer energy supply shocks.
Second, this round of monetary policy adjustment does not constitute a “major reversal” of macro policy. Historical experience shows that rapid tightening following substantial monetary easing tends to have more pronounced market impacts. After the 2008 global financial crisis, major central banks worldwide deployed unconventional monetary policies, and in 2013 the Federal Reserve’s mere signaling of tightening triggered a “taper tantrum.” Following the COVID-19 pandemic, the United States and other major economies implemented large-scale easing policies, and after inflation surged significantly, they were forced to raise rates rapidly, causing clear shocks to global financial markets. In contrast, before this round of adjustments, monetary policy at major overseas central banks still retained a degree of restrictiveness, meaning this round of rate hikes primarily brings changes in interest rates and liquidity rather than a fundamental reversal of policy orientation.
The report also cautioned that uncertainty regarding the impact of this round of rate hikes on global financial markets still warrants attention.
Market SegmentKey Risk PointsBond MarketHigh government debt in some economies; rising rates may intensify debt servicing pressuresEquity MarketElevated valuations in some economies; liquidity tightening may trigger market correctionsEmerging MarketsEconomies with fragile fundamentals and high energy import dependence face greater spillover shocks
Note: Compiled from the PBOC’s Second Quarter 2026 Monetary Policy Implementation Report
Emerging market economies in particular need to guard against the spillover effects of rate hikes by major economy central banks. Some emerging market economies with fragile economic fundamentals and high energy import dependence could face greater capital flow and exchange rate pressures if monetary policy pivots at major central banks trigger global financial market volatility.
China’s Monetary Policy Adheres to a “Self-Oriented Approach”
Facing overseas monetary policy shifts, the report clarified China’s monetary policy response framework. Market experts noted that China is a large economy, and its monetary policy has long adhered to a self-oriented approach while balancing domestic and external equilibrium. In recent years, the PBOC has implemented a moderately accommodative monetary policy primarily to create an appropriate monetary and financial environment for stable domestic economic operations and high-quality development.
Regarding the next phase of policy direction, the report outlined a clear regulatory framework: fully leverage the effectiveness of existing policies, promptly plan and introduce practical and effective incremental policies, strengthen counter-cyclical adjustments, and intensify efforts to expand domestic demand and optimize supply. At the same time, closely monitor monetary policy changes at major overseas central banks, continuously strengthen analysis and monitoring of banking system liquidity supply-demand conditions and money market changes, comprehensively utilize and adjust monetary policy tools in a timely manner, maintain ample liquidity, and better guide short-end money market rates to operate smoothly around the policy rate.
The report emphasized that China will continue to implement a moderately accommodative monetary policy, calibrating the intensity, pace, and timing of policy implementation based on domestic and international economic and financial conditions and financial market operations, maintaining ample liquidity and relatively accommodative social financing conditions, and leveraging the combined effects of incremental and existing policies.