Shou Xiaoli:

The final question.

Phoenix TV:

We noticed that the real interest rate has become a hot topic recently. Some people think the rate is relatively high. What is the opinion of the PBC? Thank you. 

Zou Lan:

I'm glad to answer this question. The real interest rate has indeed attracted much attention in the market, which we have also noticed. In earlier years, when talking about the real interest rate, we referred to the interest rate paid by enterprises or residents. However, in addition to the interest rates stated in loan contracts, there were still various fees such as guarantee fees and mortgage registration fees. Therefore, when we mentioned the real interest rate in the past, we meant to lower it by reducing comprehensive financing costs. But this time, people are probably treating it as a theoretical economic concept. Simply put, by deducting the inflation rate from the nominal interest rate, we get the real interest rate which is being discussed this time. Therefore, it is both related to the nominal interest rate and influenced by the inflation trend. In the past several years, the nominal interest rate has continued to decrease, playing a positive role in promoting the overall economic recovery and growth. However, domestic demand is comparatively weak, while at the same time, prices are at a lower level. For example, this January, the year-on-year CPI growth rate dropped for a period to minus 0.8%, which I think is also a major reason why discussion of the real interest rate became heated. The PBC will focus on ensuring stable prices and promoting a mild rebound in prices while implementing monetary policies. It will also put more emphasis on the characteristics and development of inflation indicators. Given that prices are currently at a lower level mainly due to structural and phased reasons, we still need to carry out more in-depth observation and analysis.

From the structural perspective of prices, price indices such as CPI and PPI, as well as the average interest rates on loans, refer to the notion of average figures. However, as the economic structure is transforming and upgrading, old driving forces are being replaced by new ones, and steady progress is being made in pursuing high-quality development, economic and financial indicators in various areas will become even more divided. Against such a backdrop, we need to pay attention to both the average figures and the structural elements. Loan interest rates vary among different sectors and enterprises, and meanwhile, the amount of increases and decreases in their product prices are not the same. Therefore, they have different senses of the real interest rate. For instance, in areas of the service sector such as culture and entertainment, and fields related with new growth drivers, prices have continued an upward trend, and financial institutions are proactively providing financing support. The nominal interest rates in these sectors are comparatively lower. Therefore, after deducting the price increase rate from the financing interest rate, people in these sectors feel that the real interest rate is lower. In contrast, for industries closely related to the real estate sector, such as the ferrous metal industry, their product prices saw comparatively bigger drops. Consequently, financial institutions are more cautious and nominal interest rates are higher, which leads to a relatively higher real interest rate. For areas that currently require tight allocation of financial resources, slightly higher real interest rates can help enterprises control production capacity and reduce inventory to a certain extent. This also demonstrates the requirements made at the central financial work conference on maintaining reasonable and sufficient monetary aggregate and allowing structural adjustments.

From the viewpoint of phased changes in prices, on the one hand, China has sustained its sound economic growth and overall demand is expanding, thereby having the right foundations and conditions for a price recovery. On the other hand, prices for some agricultural products have reached a turning point of adjustment, and tourism and travel have become more frequent, both of which will help promote an increase in prices. Therefore, we are expecting an overall moderate recovery of prices from low levels, and at the same time, real interest rates will also change accordingly. Of course, we still need to pay attention to the range, speed and fluctuations of the recovery.

In general, we still need to comprehensively study and analyze the situation of prices and the real interest rate. A series of measures taken in the previous phase have already taken effect. In the future, we will continue to examine the situation by considering multiple elements, including economic recovery momentum, inflation trends and the advancement in transformation and upgrading. Based on price changes and development, we will maintain the nominal interest rate within a reasonable range and consolidate the momentum for economic recovery and growth. Meanwhile, we also need to fully consider the needs of high-quality development, avoid reducing the motivation of structural adjustments, prevent low interest rates, and avoid involuntary competition intensifying or funds circulating within the financial sector without entering the real economy, which may result in further price decreases or a negative cycle. Thank you.

Shou Xiaoli:

Thank you to all the speakers and journalists for your participation. Today's press conference is hereby concluded. Goodbye.

Translated and edited by Xu Xiaoxuan, Yuan Fang, Liu Sitong, Huang Shan, Qin Qi, Liu Jianing, Wang Yanfang, Yan Bin, Liu Qiang, Liu Caiyi, Zhang Rui, Yan Xiaoqing, Wang Qian, Gong Yingchun, Li Huiru, Zhou Jing, David Ball, Jay Birbeck, and Rochelle Beiersdorfer. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.