SCIO briefing about effects of monetary and financial policies on high-quality development of the real economy

Market News International:

Firstly, China's CPI has remained below the target level, with current price levels still low. How does the PBC view the outlook for prices this year, and what measures will be taken to promote a moderate recovery in prices? And the second question is: how does the PBC view the outlook and possible performance of the yuan-U.S. dollar exchange rate this year? And what are the potential sources of volatility or disruption? Thank you.

Zou Lan:

Thank you. You asked two questions, and I'll answer them separately.

Regarding prices, China's price levels have shown positive changes recently. In December 2025, the CPI rose 0.8% year on year, reaching its highest level since March 2023. Core CPI, excluding food and energy, rose 1.2% year on year, remaining above 1% for four consecutive months. The PPI year-on-year decline also narrowed by 1.7 percentage points from its low point in July, and rose for three consecutive months on a month-on-month basis.

The structural breakdown of prices is also informative. Among the eight major categories of CPI indicators, food and transportation saw the largest declines. Since 2023, pork prices have fallen 30% cumulatively, while transportation prices have dropped 11.7%, mainly due to cyclical factors and supply-demand dynamics. At the same time, prices for education, culture and entertainment rose 3.6%, with tourism alone up 14.4%. This indicates that Chinese residents' consumption patterns are continuously being optimized and upgraded, and there remains considerable room for improvement in supply in these areas.

The synergistic effect of China's macroeconomic policies continues to strengthen. The unified national market is being advanced in depth, new growth drivers are developing and expanding, and targeted actions to boost consumption are being implemented. These efforts will continue to promote better alignment between supply and demand, facilitate the circulation of the real economy, further boost market confidence, and have a positive impact on prices.

The PBC has been closely monitoring price trends. In recent years, a supportive monetary policy stance has been maintained, ensuring ample liquidity. Growth in the overall financial sector has been significantly higher than nominal GDP growth over the same period, persisting for a relatively long time and resulting in a large cumulative increase. Moving forward, the PBC will earnestly implement the guiding principles of the Central Economic Work Conference, with promoting stable economic growth and a reasonable rebound in prices as important considerations of monetary policy. It will continue to implement a moderately loose monetary policy, leverage the combined effects of new and existing policies, and create a favorable monetary and financial environment to promote a reasonable recovery in prices.

Regarding exchange rates, China's exchange rate policy is clear and consistent: the market plays a decisive role in exchange rate formation, and the yuan exchange rate is kept basically stable at a reasonable and balanced level. China is a responsible major country and has neither the need nor the intention to gain a competitive advantage in international trade through currency devaluation.

Globally, developed economies have sharply raised interest rates in recent years before rapidly cutting them again. International trade barriers and frictions have also increased, leading to significantly greater volatility in global financial markets. The yuan exchange rate faced depreciation pressure, and the PBC and the SAFE strengthened expectation management to prevent the risk of exchange rate overshooting. Since 2020, the U.S. dollar index has risen about 1.9%, while over the same period, the CFETS yuan index, which measures the yuan exchange rate against a basket of currencies, has risen 7.2%. Overall, the yuan exchange rate has been stable.

The factors affecting exchange rates are diverse, including economic growth, monetary policy, financial markets, geopolitics and unforeseen shocks. At the end of 2025, driven by market forces, the yuan rose above 7 to the dollar. This was mainly because, since May 2025, China-U.S. economic and trade tensions have eased, the dollar has weakened, and the yuan has appreciated against the dollar. Looking ahead, China has a mega-sized market and a complete industrial chain. Technological innovation and industrial innovation are increasingly integrated, new growth drivers are thriving, domestic demand potential is continuously being released, the domestic-international dual circulation is becoming smoother. These improving long-term macroeconomic fundamentals support the basic stability of the yuan exchange rate.

It should also be noted that the external situation remains complex and challenging. The magnitude and pace of interest rate adjustments in major economies remain uncertain, and geopolitical shocks may persist, leading to volatility in exchange rates. The RMB exchange rate is expected to continue fluctuating in both directions while remaining flexible. Against this backdrop, the PBC has continued to improve policy arrangements for cross-border RMB use and supported financial institutions in enriching exchange rate risk hedging products. We have enhanced the capacity of foreign trade enterprises to manage exchange rate fluctuations and strengthened the resilience of the foreign exchange market. Foreign trade enterprises using RMB for cross-border trade settlement are largely unaffected by exchange rate fluctuations. This proportion currently stands at about 30%. For those settling in foreign currencies, the foreign exchange hedging ratio has also risen to around 30%. Enterprises can lock in exchange costs in advance, avoiding the impact of exchange rate fluctuations on production and operations. Overall, approximately 60% of import and export trade is relatively unaffected by exchange rate fluctuations. Moreover, as high-level institutional opening-up continues to deepen and financial services continue to improve, this proportion is expected to keep rising.

Regarding the resilience of the foreign exchange market and the availability of financial hedging tools, Mr. Li has already provided a detailed introduction in his earlier response, so I will not repeat it here. Regarding exchange rate policy, the PBC will continue to uphold the market's decisive role in exchange rate formation and maintain the flexibility of the RMB exchange rate. We will leverage the exchange rate's role as an automatic stabilizer for macroeconomic and balance of payments adjustment. We will strengthen expectation guidance, prevent the risk of exchange rate overshooting, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

Thank you for your questions.