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MNI (London)
--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,
     Zhang Junwei, director of a research body attached to the State Council,
agreed, noting that as the economy stabilizes, risk prevention needs to be
     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.
     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
     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:
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MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |