PBOC: Deflation not in the cards for 2023

China's economy is not witnessing deflation, with its consumer inflation rate likely to recover to the average seen in recent years by the end of 2023, the People's Bank of China, the country's central bank, said on Monday.

"Currently, there is no deflation in China's economy," the PBOC said in its first-quarter monetary policy report, adding the recent moderation in price increases is mainly due to the faster recovery in supply than demand and last year's high comparison base.

In contrast with deflation, which refers to a sustained decrease in prices and a downtrend in money supply, China is experiencing a moderate increase in prices with the core consumer price index rising about 0.7 percent year-on-year and a relatively fast growth in broad money supply and social financing, the PBOC said.

The country's CPI reading may rise mildly in the second half of the year and reach the average level seen in recent years by the end of the year as the gap between supply and demand narrows, the central bank said.

The PBOC said it will pay attention to any marginal changes in price levels and maintain stable social expectations of inflation, while ensuring its prudent monetary policy provides an appropriate aggregate amount of support at a steady pace.

Efforts will be made to keep interest rates "reasonable and proper," the PBOC said, compared with "reducing the costs of corporate financing and consumer credit", which it said in its fourth-quarter report published in February.

On the structural front, the central bank said it will maintain the stability of relending and rediscount facilities and effectively motivate private investment with government spending and developmental financial instruments.

While the impact of Silicon Valley Bank's collapse on China is manageable, given domestic financial institutions' limited risk exposure, it is still important to enhance risk awareness as the effect of major central banks' tightening manifests itself while domestic demand remains insufficient, the central bank concluded.