China's State Administration of Foreign Exchange released its 2023 balance of payments report on Friday, stating that in 2024, after the slowdown in inflation becomes more clear, the U.S. and European central banks are expected to gradually lower policy interest rates as inflation falls. In the future, China's domestic economic development momentum will be further consolidated and enhanced, and the international financial environment is expected to improve, which will be conducive to maintaining overall stability in China's cross-border capital flows.

A report published on the website of the State Administration of Foreign Exchange pointed out that China's economic fundamentals continue to improve. In the future, the gap between domestic and foreign interest rates will gradually narrow, and the momentum of US dollar appreciation will weaken. This will objectively be conducive to China's cross-border capital flows becoming balanced and the RMB exchange rate at a reasonable and balanced level. Basically stable.

The following is the full text of the column titled "Major central banks are likely to reach the end of this round of interest rate hike cycles" in the report:

Under the influence of multiple factors, inflation in developed economies in the United States and Europe will gradually fall in 2023. After the epidemic, the monetary policies of developed economies in the United States and Europe have shifted from all-out easing to substantial tightening. Since 2022, the Federal Reserve, the European Central Bank, and the Bank of England have raised interest rates by a cumulative 525, 450, and 500 basis points respectively, with the benchmark interest rate raised to 5.25%-5.5%. , 4%, 5.25%. Superimposed on the combined impact of other factors, inflation in the United States and the Eurozone will both drop to around 3.0% in December 2023, which is about 6 to 7 percentage points lower than the peak in 2022.

From the main performance: First, demand has cooled. Economic growth in developed economies will drop from 2.6% in 2022 to 1.5% in 2023. Enterprise employment demand has cooled significantly, and the shortage of labor has eased. The second is supply improvement. In terms of energy, U.S. energy prices will fall by 2.0% in 2023, and European natural gas prices will drop by 50% cumulatively from the end of 2022. In terms of commodities, improvements in the global supply chain have driven commodity price growth to slow significantly or even turn negative.

In terms of labor supply, U.S. residents have regained their willingness to work after the epidemic. The labor force participation rate of the U.S. population aged 25-54 once rose to 83.5%, a 20-year high. The number of immigrants has surged, and the pressure on wage increases has eased. Third, inflation expectations have fallen. The central bank has resolutely and continuously raised interest rates, demonstrating its determination to control inflation and driving down residents' inflation expectations. Inflation expectations for the next year in the United States and the Eurozone have dropped from the peaks of 5.4% and 5.8% in 2022 to 3.1% and 3.2% at the end of 2023 respectively.

The central banks of the United States and Europe released signals that interest rates have peaked and are cautiously preparing for a shift in monetary policy. As inflation falls from highs, the central banks of the United States and Europe will gradually slow down the pace of interest rate increases in 2023. The Federal Reserve, the European Central Bank, and the Bank of England will raise interest rates by 100, 200, and 175 basis points respectively in 2023, which are all lower than the 425, 250, and 325 basis points rate hikes in 2022.

The Federal Reserve 10 has kept its policy interest rate unchanged since August 2023. At its December interest rate meeting, it lowered its policy interest rate forecast for the end of 2024 from 5.1% to 4.6%. Chairman Powell said that it has begun to discuss interest rate cuts and hopes not to make the mistake of cutting interest rates too late. , releasing a "dovish" signal; the European Central Bank has kept interest rates unchanged since raising interest rates in September 2023.

In 2024, after the slowing trend of inflation becomes more clear, the central banks of the United States and Europe are expected to gradually lower policy interest rates as inflation falls. The latest forecasts from the Federal Reserve, the European Central Bank, and the Bank of England believe that inflation in the United States, the Eurozone, and the United Kingdom will slow to 2.6%, 2.2%, and 2.9% respectively by the end of 2024, close to the 2% target level. The central banks of the United States and Europe will weigh the timing and speed of interest rate cuts very carefully and try to balance the goals of controlling inflation and stabilizing growth.

On the one hand, the inflation trend may still have twists and turns, so we should avoid premature interest rate cuts that increase the risk of an inflation rebound; on the other hand, when the labor market cools to a certain extent, the risk of a non-linear increase in the unemployment rate will significantly increase. Economic fundamentals, the U.S. presidential election Unexpected disturbances such as global geopolitical tensions and global geopolitical tensions may also cause inflation and employment data to deviate significantly from the expected paths of major central banks, forcing them to readjust their monetary decisions to avoid increasing the risk of an economic "hard landing."

In the future, the momentum of domestic economic development will be further consolidated and enhanced, and the international financial environment is expected to improve, which will be conducive to maintaining overall stability in cross-border capital flows in my country. Since 2024, my country's economic momentum has continued to improve, and economic performance has stabilized and improved. From January to February, the manufacturing and non-manufacturing purchasing managers index (PMI) both rebounded compared with December 2023; the total scale of social financing increased by 14.56 trillion yuan, a record high for the same period in history; the added value of industries above designated size increased by 7.0% year-on-year , fixed asset investment increased by 4.2%, and total retail sales of consumer goods increased by 5.5%, both showing a stabilizing and improving trend.

On the basis of my country's economic fundamentals continuing to improve, in the future, the interest rate gap between domestic and foreign countries will gradually narrow and the momentum of US dollar appreciation will weaken, which will objectively help my country's cross-border capital flows to become more balanced and the RMB exchange rate to be basically stable at a reasonable and balanced level. (over)