Shou Xiaoli:

Thank you, Mr. Pan. The floor is now open for questions. Please identify the media organization that you work for before asking your questions.

CNBC:

If the U.S. Federal Reserve (Fed) doesn't raise interest rates again this year, will the PBC have greater flexibility to adjust its monetary policy? Thank you.

Pan Gongsheng:

Thank you for your question. I usually spend half an hour every morning at work to stay updated with news from CNBC, and I noticed that there are a lot of discussions on this issue as many experts have shared their insights on your channel. As far as I'm concerned, this is a very good question. Currently, the changes in this year's monetary policies by major central banks, such as the Fed, have attracted great attention, and the PBC also continues to monitor the situation. As we know, since the Fed started to raise interest rates in March 2022, its interest rates have seen a cumulative increase of 525 basis points to the current 5.25-5.5% range. The European Central Bank (ECB) has also raised its interest rates 10 consecutive times, with its main refinancing rate surging from 0% to 4.5%. Therefore, interest rates in both the U.S. and the European region currently stand at record highs. In the meantime, it has also become evident that the rapid increase in interest rates is gradually affecting economic growth, inflation, and the financial markets of developed economies. There has been a lot of discussion from actors in these markets, who expect a possible interest rate cut by the Fed and the ECB in 2024. In general, the Fed's monetary policy direction indicates it will shift this year.

Over the past year, due to the impact of market expectations toward the interest rate policies of the U.S., the U.S. dollar exchange rate has seen certain fluctuations. The U.S. Dollar Index (USDX) surged as high as 114 in 2022, its highest level since 2002. It generally remained above 100 throughout 2023 and is currently fluctuating around 103. The changes in the USDX are closely tied to the expectation of interest rate policies. Therefore, as the Fed halted this round of interest rates increase, the market in general is also anticipating a weak momentum for a significant strengthening of the USDX in the future.

What impact does the shift of the Fed's monetary policies have on those in China? Well, China's monetary policies have always given prominence to the country's own development, whilst balancing both domestic and overseas situations. In 2023, in the face of the spillover effect of major economies' monetary policies, the PBC worked in accordance with domestic economic growth and reduced both the interest rates and the reserve requirement ratio (RRR) twice. This helped maintain reasonably sufficient liquidity, optimized credit loan structure, and effectively bolstered the real economy. In the meantime, based on the supply and demand of the foreign exchange market, the PBC and the SAFE also managed to stabilize market expectations through macro policies and prudent management measures. In general, the RMB exchange rate has remained basically stable despite complex situations.

To sum up, the monetary policies of developed economies are expected to put less pressure on other countries in 2024, and the cyclical difference of monetary policies between China and the U.S. is narrowing. This shift in the external environment objectively strengthens the autonomy of China's monetary policy measures and makes them more flexible.

Thank you.