Recently, due to the continuous rise of consumer price index CPI and the general rise of prices, "inflation" has become a hot word in the financial sector. So, has China fallen into inflation now? If prices continue to rise, should monetary policy take some measures, such as raising deposit interest rate or deposit reserve interest rate? Will this year's GDP growth rate slow down? Will the securities market be affected by this? With this series of questions, we invited Wang, deputy director of the Institute of Finance of China Academy of Social Sciences, and He Liping, a famous financial expert and professor of the School of Economics of Beijing Normal University, to discuss the choice of monetary policy under the inflation situation. The classic definition of inflation is "the continuous rising process of the overall price level". No matter what factors drive it, as long as the indicators to measure the price level continue to rise, it can be concluded that there is inflation in the economic system. Reporter: Recently, the CPI index has been rising, and Zhou Xiaochuan, the governor of the central bank, has repeatedly stressed that the current inflation trend is very obvious. Do you think the current situation is inflation? Wang: The classic definition of inflation is "the continuous rising process of the overall price level". No matter what factors drive it, as long as the indicators to measure the price level continue to rise, we can think that there is inflation in the economic system. Recently, Governor Zhou Xiaochuan's views on inflation are beyond reproach. He Liping: People usually use inflation and deflation to indicate the rise or fall of the overall price level. A few years ago, consumer prices in China fell and people talked about deflation. In contrast, there is a rise in consumer prices, and the corresponding word is inflation. Of course, this is not very close to what ordinary people say about inflation, because what ordinary people say about inflation may mainly refer to the overall rise in prices. At present, the rise in the price level only occurs in some products or certain industries, while other products and other industries have not risen. This obviously cannot be said to be an "all-round inflation". However, as a general price level index that reflects all commodities, or all commodities and services that affect people's lives, it is indeed rising now. The new figure is that the national consumer price level in June 2004 increased by 3.2% compared with a year ago (June 2003). This is the annual price increase level, which is obviously very different from the situation a few years ago. In this sense, it can be said that the overall price level in China has gone up, or it has gone up. What does this rise mean? Does it mean that the price level will continue to rise, or will it stay at the current level and fluctuate slightly around 3.2%? These possibilities exist. Many factors at home and abroad will affect the future price level of China, so this is a delicate issue, and it is still difficult to draw a conclusion. It is more important to curb inflation expectations. Reporter: So, where are the key factors to prevent inflation? What measures should monetary policy take to prevent inflation from continuing to grow? Wang: There are all kinds of inflation in the world. First of all, we should distinguish the types of inflation, study its formation mechanism, and then prescribe the right medicine. Judging from the reasons for the price increase in China in 2003, there are mainly the following points: (1) The price increase of agricultural products has obviously promoted the price increase of some consumer goods, which is mainly caused by two factors: First, the total grain output has shown a downward trend in recent years; Second, the price of agricultural products in the international market last year was significantly higher than that in 2002. In recent years, the prices of bulk agricultural products in China have generally converged with those in the international market. (2) The rapid expansion of credit promotes the rapid growth of fixed assets investment in the whole society, and some raw materials are in serious shortage and prices have risen sharply. As a result, the market price of similar products abroad has risen sharply due to a large number of imports, which indirectly affects the ex-factory cost of many manufactured goods and puts upward pressure on the prices of various products. The main duty of the central bank is to keep the currency stable. When inflation appears, in order to restrain the inertia effect of rising prices, the monetary authorities should respond. Judging from China's actual situation, the price increase of agricultural products, whether due to the reduction of grain production or the transmission effect of the price fluctuation of bulk agricultural products in the international market, has nothing to do with the tightness of monetary policy. The central bank can only influence the credit expansion speed of commercial banks, the overheating of some related industries and the sharp increase in the prices of production materials. In June, 2003, the Central Committee issued the document 12 1, which is a window guiding measure. Facts have proved that its effect is not very significant. From this point of view, it seems that the central bank should think of some other methods, such as taking some new actions in interest rate or deposit reserve ratio, in the practice of monetary policy operation focusing on restraining excessive credit expansion in 2004. He Liping: The price levels of various commodities and services change with economic growth, the improvement of people's income level, technological changes and trade development. This is a very natural phenomenon in the life of market economy. However, if other factors affect the rise of the overall price level, especially abnormal changes, then certain macroeconomic policy adjustments are often needed. In macroeconomic policy, monetary policy or various policy tools mastered by the central bank can play a relatively big role. There is an important difference to explain here. A popular saying in the past was that the central bank adopted a tight monetary policy to prevent inflation. This is generally or generally correct. However, it should be admitted that in the past 20 years, an important result obtained by economists at home and abroad after repeated discussions on inflation is that monetary policy adjustment is not only a simple, linear or even primitive monetary policy that needs to take austerity measures to control the inflation that has already appeared. Fundamentally speaking, the new monetary policy principle is to prevent or reverse inflation expectations. Under the condition of modern economy, inflation expectation is the most basic factor to promote inflation. In other words, as long as the public generally forms inflation expectations, even at a low inflation level or when the price increase rate is still relatively slow, inflation will inevitably come. If inflation expectations are small and weak, monetary policy may be very useful and can play a role in reversing inflation expectations. In other words, if we are not talking about high-level and large-scale inflation, the goal of monetary policy is the public's inflation expectations. If inflation expectations are formed and the price level continues to rise, the monetary authorities can only take a very simple countermeasure, that is, comprehensive contraction measures. Tight monetary policy can have many meanings. It can mean that all policy interest rates are raised, all credit expansion is limited, and all base currency issuance is suspended. This will only happen in extreme cases. Things are very different now. Monetary authorities may face slight inflation expectations and some uncertainties. In response to this new situation, it is necessary to adjust the orientation of monetary policy. Reporter: Recently, it was suggested that the central bank raise the deposit interest rate or deposit reserve ratio. What do you think of this problem? Considering the timing of interest rate adjustment, do you think interest rate adjustment will further increase the pressure of RMB appreciation? Wang: In the hands of the central bank, there are price tools and quantity tools. The mechanism of price-based tools is complex and the transmission process is tortuous; However, the quantitative tool has simple action mechanism and simple conduction process. Which tool to choose depends on the urgency of adjustment and the expected range of goals. In order to appropriately restrain the excessive credit expansion of commercial banks and reduce the financial risks arising from the expansion, it seems that we can choose between interest rate and deposit reserve ratio. Generally speaking, variable interest rates should be based on the premise that the capital demand of enterprises in the real economy sector has sufficient interest rate flexibility. Judging from the situation in 2003, steel, electrolytic aluminum, cement and real estate development have all become profitable industries. In this case, the loan interest rate is raised a little, which can be ignored in the costs of these industries. Therefore, relying on interest rate as a price means cannot achieve the expected purpose of macro-control. It seems that the realistic choice can only be a combination of administrative means and quantitative means. In the use of administrative means, China's regulatory authorities have long been familiar with it. The question is what kind of quantitative means to choose. As there are differences in capital, assets, operating conditions and risks among commercial banks, it is a wise choice to implement the differential deposit reserve ratio based on China's national conditions. He Liping: Interest rate adjustment refers to the adjustment of policy interest rate. In fact, if people have formed certain inflation expectations, then the market interest rate level has changed. From the domestic money market in recent months, including the national debt issuance market, capital borrowing market and some new securities issuance prices, we can see that some changes have taken place in the market interest rate level in China. The main reason for these changes is that market participants, financial institutions and investors have considered that there may be some uncertainties in future inflation. When they accept and buy these assets and financial instruments, they form new views and new return requirements for buying and selling related financial instruments and financial assets. However, we talk about the level of policy interest rates, especially those directly determined by the central bank, such as deposit interest rates, loan interest rates, refinancing interest rates, money market repo rates, etc. , has not moved. Obviously, the monetary authorities hope to stabilize the status quo of the capital market, and it is not the time to make adjustments. Needless to say, interest rate is an extremely important tool for monetary authorities to deal with inflation or inflation expectations. This tool has always been in the pocket of the monetary authorities and can be used anytime and anywhere. Do not rule out not using this tool this year or the year after. Its use depends on the judgment of the monetary authorities, that is, how people view the change of price level, the trend of economy, the economic environment at home and abroad and so on. Considering these economic factors comprehensively, it cannot be said that interest rates should be adjusted now. The whole situation is changing, and it is also a scientific judgment for the monetary authorities to form a new understanding and judgment dynamically. Many times, it is necessary to predict the new situation and have some kind of "prediction competition" with the economic environment. It can be added that the current domestic interest rate level is relatively low, especially the policy interest rate level is low. If there is a certain degree of inflation and expectation, if the monetary authorities need to adjust the interest rate, it will be relatively small. As for whether the interest rate adjustment will affect the RMB exchange rate, it depends on the gap between the domestic interest rate level and foreign countries in the future and its changing direction (to some extent, it depends on the cross-border liquidity of arbitrage funds). The gap between China's current interest rate level and foreign countries is not very big, that is to say, there is no outstanding gap between the domestic interest rate level and the international market. If some interest rate differences will affect the capital inflow decision of some capital holders, then the impact will certainly be small. In addition, for cross-border arbitrageurs, an important risk factor he must consider is the possibility of foreign interest rate changes. For example, the interest rate level in North America is currently in an uncertain period. The Fed is likely to raise policy interest rates later this year. Therefore, China's interest rate hike is not restricted by the obvious international environment.