MNI EXCLUSIVE: No Further PBOC RRR Cut Seen In 2019: Advisor

--PBOC Caution Needed On Further Easing To Prevent Liquidity Risks

     BEIJING (MNI) - The People's Bank of China is unlikely to cut the reserve

requirement ratio again this year and should exercise caution over any further

easing in order to prevent excess liquidity further boosting asset prices and

risking all the gains from Beijing's deleveraging moves, a former PBOC official

and government advisor told MNI.

     Noting the depth of liquidity currently in the interbank market, Sheng

Songcheng, former director of the statistics department of the PBOC, said

whether the central bank's policy would turn to a "neutral" bias will depend on

overall economic performance.

     "The monetary policy is to take a step at a time," he said.

     Sheng's comments come after the PBOC announced Monday that it would cut the

RRR for 1000 rural commercial banks to 8% from 11%, unlocking an additional

CNY280 billion to help small businesses,

     -RISK PREVENTION

     Zhang Junwei, director of a research body attached to the State Council,

agreed, noting that as the economy stabilizes, risk prevention needs to be

re-emphasized.

     For Zhang, the economic fundamentals have not changed dramatically and

improvements could be limited as new investment streams are yet to kick in. But

he still advocates a prudent monetary policy to prevent a build-up of liquidity

led asset bubbles.

     "The authorities have made proactive, prompt and strong moves against the

slowdown, including fiscal, monetary and administrative measures, which has led

to the unexpected performance," Zhang said, "But the policy should play a second

role, compared with the fundamentals (recovery itself)," he added.

     -PROPERTY PRICES

     Sheng also expressed concern that a surge of new investment in the property

sector could push house prices sharply higher.

     "What worries me most is that the house price could rise at a rapid pace

again if capital floods into the property sector, so the regulation on the

sector should remain," Sheng said.

     His main worry may be crystalizing, with signs already pointing to a rapid

pickup in prices.

     Yan Yuejin, research director with E-house China R&D Institute, told MNI

the rising of house price has speeded up in March.

     "The major driver for rising prices is the robust buying demand and some

banks relaxing control on mortgage loans," said Yan. "Some local governments

have also lifted restrictions on house purchase to activate the market," he

continued.

     Banks can easily access funds for loans as liquidity is adequate, so it is

likely to flow into the property market, Yan warned, stressing the regulators

and banks should enhance controls, particularly ensuring funds meant to support

small businesses are not misused.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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