Zhou Xiaochuan: Real interest rate to stay negative for now

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Zhou Xiaochuan, president of the People's Bank of China.

The president of the People's Bank of China, the country's central bank, said at a press conference of the National People's Congress on Friday that real interest rates will remain negative for the short term before becoming positive again.

"The consumer price index will vary very fast and interest rate cannot follow it," said Zhao Xiaochuan, president of the PBOC. "So we will see negative interest rate for a short period of time. As far as I know, the inflation expectation is fairly stable."

Although China's central bank has raised interest rates three times since last October, it has not kept up with the rising consumer price index, which was 4.9 percent in February. The one-year deposit rate for financial organizations is currently at 3 percent.

Under a negative interest rate, lenders lend money for a loss.

Zhou said that because the Chinese financial market is not fully open, the government can still manage capital inflow through a variety of tools to fend off inflation stemming from the recovery from the financial crisis.

Besides the interest rate, the government began to increase the required reserve ratio in January to absorb liquidity, Zhou said.

Zhou said any future policies would depend on the economic situation and liquidity. "We must take uncertainties into consideration," he said. "This year, we will apply 'steady' monetary policy."

He added that the PBOC will continue to manage liquidity.

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