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**BEIJING (MNI) - Ming Ming, head of fixed income research at CITIC
Securities, China's biggest securities brokerage, and a former PBOC monetary
policy official, spoke to MNI in an exclusive interview last week.
Here are five things we learned:
1) Ming's key thinking differs from at least one current PBOC official, who
has recently spoken against raising the benchmark interest rates, is that he
thinks China should raise its benchmark loan and deposit interest rates
"asymmetrically," i.e., not simultaneously. Ming thinks the central bank should
first hike its deposit rates this year considering residential savings are drawn
into the booming wealth management sector, whilst staying more cautious on
increasing the borrowing rate that may weigh on the economy.
2) Liquidity in the interbank market this year will be better than that in
2017, according to Ming. His opinion is contrary to the PBOC observers who
expect the PBOC would tighten the floodgate, so the liquidity situation would
deteriorate. Ming thinks the PBOC may not conduct across-the-board reserve
requirement ratio (RRR) cut while in deleveraging campaign to avoid sending
signals of relaxing monetary policy. But targeted RRR cuts may be done more for
small and medium-sized banks to prevent a systemic liquidity crunch.
3) Ming predicts yield on 10-year Chinese government bond may trade in a
4%-4.3% range in 2018. The market has reached the consensus that the yield will
further rise this year, and the ceiling should be around 4.5%. Ming thinks the
ceiling should be lower, considering financial regulations may not be as
stringent as seen in 2017.
"The rapid gain in money-market rates may slow as strict regulations on the
financial sector may be relaxed to revive a softening economy," he said.
4) CPI may grow above 2%, even nearing 3% in China, compared with some PBOC
officials reckoned the inflation would be "stable". Ming thinks expectation of
higher inflation may push up bond yields this year.
"Financial regulation reform by policy makers will play a decisive role to
bond performance," Ming notes.
5) Some cases of default of local government funding vehicles (LGFV) may be
unavoidable as the central government tightens controls over LGFV funding. Local
governments may not bail them out fearing the financial burden and risks that
they may courage reckless investment behaviors.
"Investors should give up the 'belief' on the high-yield and low-risk LGFVs
because the government is more cautious on the bailout," Ming says.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: firstname.lastname@example.org
--MNI Beijing Bureau; +86 10 8532 5998; email: email@example.com