China's central bank on Friday shed light on the country's inflation outlook, the trajectory of the Chinese currency's exchange rate and dynamics within the real estate market.

At a press conference announcing financial data for the first half of 2023, Liu Guoqiang, deputy governor of the People's Bank of China (PBC), said that the challenges currently faced by the Chinese economy are a normal phenomenon in the era following the global COVID-19 pandemic. 

However, he said that over the long term, the Chinese economy is shifting towards high-quality development.

CPI close to 1 percent at year-end, no deflation risk

"We don't see deflation at present and there will not be a deflationary risk in the second half of this year either," Liu said, pointing out that the Chinese economy has recovered steadily with the M2 broad money supply maintaining relatively sound growth, which differs from historically typical conditions for deflation.

In response to the country's softening price growth in recent months, Liu predicted that China's consumer price index (CPI), the main gauge of inflation, will see a U-shaped trajectory this year and will be close to 1 percent at the end of 2023.

China's CPI remained unchanged in June in year-on-year terms, compared with the 0.2-percent annual gain seen in May, the National Bureau of Statistics said on Monday.

Chinese yuan exchange rate retains stability

Meanwhile, responding to concerns about recent fluctuations of the Chinese yuan, or the renminbi, Liu stressed that economic fundamentals remain sound and the currency is unlikely to experience sharp fluctuations over the long term.

Supported by China's long-term positive economic outlook, strong foreign exchange reserves and balanced cross-border capital flows, China's forex market will continue to be stable, with the renminbi's exchange rate maintaining a reasonable balance, he added.

The central bank also has an array of policy tools to support the renminbi's exchange rate, Liu added.

On Friday, the central parity rate of the renminbi strengthened 209 pips to 7.1318 against the U.S. dollar, according to the China Foreign Exchange Trade System, marking the sixth consecutive day of strengthening.

Profound transformation in housing supply and demand

The supply and demand in the Chinese property market have experienced a profound transformation, indicating the necessity for policy optimization, said Zou Lan, head of PBC's monetary policy department.

On Monday, regulators announced that China is extending financial support for the stable and healthy development of the country's real estate market, with measures including the extension of loans, adjustment of repayments, and guarantee of risk classification, to facilitate the completion and delivery of real estate developments.

Moving forward, the financial sector aims to enhance policy precision to facilitate a steady and robust growth of the real estate market, Zou said. However, it will take some time to gradually address the long-standing risks accumulated by certain real estate companies, he added.

Financial support for MSMEs as key task

Meanwhile, the PBC will continue to provide financial support to micro, small and medium-sized enterprises (MSMEs) in three aspects, Zou said at the press conference.

These include providing various policy support tools, upgrading the financial service capacity of MSMEs, and broadening financing channels for enterprises, Zou explained.

In June, China's Small and Medium Enterprises Development Index (SMEDI) ended three consecutive months of decline as the country's policies to promote economic recovery continue to take effect, China Association of Small and Medium Enterprises (CASME) said on Monday.