The GTHT Macro Research team led by Liang Zhonghua notes that the PBOC's Q3 monetary policy report emphasizes a dual focus on "counter-cyclical and cross-cyclical adjustments," signaling a shift from aggregate expansion to efficiency optimization and structural realignment. With full-year economic targets deemed achievable, the urgency for immediate monetary easing has eased, prioritizing implementation of existing policies. However, given low inflation and historically high real interest rates, room remains for RRR and rate cuts—particularly in retail lending rates. Future policies will increasingly emphasize fostering endogenous growth drivers and long-term high-quality development.

**Key Takeaways:** 1. **Monetary Policy Stance:** The report maintains Q2’s "prudent and accommodative" tone while stressing "rational growth in financial aggregates." Notably, it reintroduces "cross-cyclical adjustments" (last mentioned in Q1 2024), reflecting alignment with the 15th Five-Year Plan and hinting at a nuanced short-term policy pivot. Through dedicated sections addressing concerns like "monetary tightening," "weak credit demand," and "interest rate efficacy," the PBOC signals a broader focus beyond short-term counter-cyclical support to include forward-looking cross-cyclical planning. This underscores a transition toward efficiency-driven structural reforms supporting medium-to-long-term growth objectives.

2. **Economic Outlook:** The report strikes an optimistic note on achieving annual targets ("steady progress with solid foundations") but cautions about external uncertainties and sluggish global growth momentum. It elevates domestic demand as a priority, advocating for an "endogenous growth model led by consumption."

3. **Interest Rate Dynamics:** Newly issued loan rates dipped 5bps QoQ in September, driven by corporate borrowing costs (general corporate loans: 3.67%, -2bps; corporate loans: 3.14%, -8bps). Mortgage rates held flat at 3.06%, down only 3bps since December 2024, suggesting room for further cuts. The PBOC highlights misaligned deposit-lending rate cuts compressing bank margins, pledging corrective measures to ensure smoother policy transmission.

4. **Structural Priorities:** Credit optimization remains central, with expanded financial support for consumption and potential policies to repair individual credit records. Fiscal-monetary measures to boost consumption are anticipated.

**Forward View:** With manageable growth targets, near-term easing may take a backseat to policy fine-tuning and cross-cyclical preparedness. However, RRR/rate cuts remain viable for 2026 if growth falters, especially given elevated real rates. Retail lending adjustments could offset limited corporate rate-cut space.

**Risks:** Monetary policy uncertainties persist.

*Disclaimer: Market risks apply. This analysis does not constitute investment advice.*