Reuters:

In the case of continued interest rate hikes by the Federal Reserve, will the space for the Central Bank to continue to cut interest rates this year be further squeezed? In this situation, will we increase the use of structural monetary policy tools? Is the Central Bank concerned about the rise in inflation against the backdrop of the recent acceleration in domestic consumer demand recovery? Thank you.

Liu Guoqiang:

Thanks for asking. These are three questions, and I'll answer them individually.

First, on the issue related to the interest rate cuts, Mr. Yi said that last year our corporate loan interest rate was 4.17%, which was a record low. This year, the People's Bank will, in accordance with the decision and deployment of the CPC Central Committee and the State Council, continue to accurately and fully implement the prudent monetary policy, which is the general direction. But how to use specific policy tools, we will consider in an integrated manner, and choose accordingly. First, we will give prominence to the domestic target. Currently, the domestic economy is improving, but there are also some uncertainties. So for the next step, we will strengthen research, coordinate growth and prices, and adjust monetary policy tools in a timely and appropriate manner according to the changes in economic development and needs. Second, we will coordinate short-term and long-term, strengthen the cross-cyclical and counter-cyclical adjustments, adhere to normal monetary policy, maintain positive interest rates and an upward yield curve, and refrain from resorting to a deluge of strong stimulus policies. Third, we will keep in mind both domestic and international situations. We will focus on domestic development and reinforce sound regulation, and also pay close attention to international developments and better manage expectations, taking into account both the internal and external balance.

Second, structural monetary policy. Structural monetary policy has been leveraged more in the past few years. By the end of last year, there were a total of 15 structural monetary policy tools, with a balance of about 6.4 trillion yuan, which have effectively guided financial institutions to reasonably grant loans and promoted the tilting of financial resources to key areas and weak links. Structural monetary policy tools mainly play the leading role and work as a driving engine; that is, structural monetary policies drive financial institutions' subsequent loans, and these loans are actually those institutions' main way to support the development of the national economy. In the next step, we will continue to evaluate structural monetary policy tools and do a good job of classifying and managing them. For some key areas and weak links that need long-term support, structural monetary policy will give longer-term, continuous support, such as in the field of inclusive finance. Some tools with more pronounced phase characteristics should be withdrawn in a timely manner. Of course, we should emphasize a slow exit, making sure not to withdraw sharply. There are also a number of tools that can be considered to interconnect with other policy tools.

Third, regarding inflation, as Mr. Yi said earlier, China's CPI increased at 2% last year. Over the past five and even ten years, the CPI increased also at 2%. These achievements are not easy to come by. We attach great importance to the issue of prices, and we judge that the overall level of inflation in China in 2023 will remain moderate. In the short term, inflationary pressures are generally manageable because the economy is in the process of recovery and development, with inadequate effective demand still being the biggest challenge. The industrial and supply chain is running smoothly. Supply is relatively adequate, and the inflation expectations among citizens are relatively stable, so there are favorable conditions to help maintain the basic stability of prices. For the long term, there remain many unpredictable factors in the external environment, but demand is still gradually recovering. However, while the probability of inflation is not large, that does not mean that there is no chance of it increasing, so we must keep in mind the worst scenarios and remain vigilant against inflation.

In the next step, the PBC will remain committed to the general principle of pursuing progress while ensuring stability, and implement a prudent monetary policy with precision and vigor, so as to help keep major economic indicators within an appropriate range and ensure price levels are kept generally stable. Thank you.