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     BEIJING (MNI) - The People's Bank of China is likely to slow its pace of
easing, pushing back any further cuts in banks' reserve requirement ratios,
thanks to better-than-expected first quarter growth data and as fiscal stimulus
supports the economy in the second quarter, government advisors told MNI.
     While advisors questioned whether the first quarter's GDP growth rate of
6.4% was sustainable, they said it should postpone further PBOC action for now,
particularly as fiscal policy moves begin to be felt.
     "Cuts in taxes and fees will take effect in Q2, so the quantitative
stimulus should be eased, " said Zhang Ping, deputy director at the National
Institute of Finance and Development, a state-level think tank, and a research
fellow at the Institute of Economics of the China Academy of Social Science.
     But he added that first quarter GDP had been boosted by strong net exports
and leverage, which could contribute to financial risks.
     "If Q2 data does not show positive signs from firms and households and
growth continues to rely on stimulus, then we could not talk of substantial
economic stability," he said.
     A clue to economic resilience could come from money supply data, he said,
noting that growth in the narrower M1 measure, which includes cash and current
account deposits, better reflects the performance of companies and households
than the broader M2, which also counts mutual funds and time deposits.
     --MONEY SUPPLY
     "If M1 growth exceeds M2, then we can say the economy has bottomed out,"
Zhang said. In March, M1 increased by 4.6% on annual basis, while M2 rose 8.6%,
PBOC data showed.
     Chen Daofu, deputy director of the Research Institute of Finance with the
State Council's Development Research Center, said interbank liquidity remains
loose, with money market rates and bond yields relatively low following
consecutive RRR cuts at the end of 2018 and in early 2019.
     "Further easing is unnecessary at present," he said, adding that a
widely-expected additional cut in banks' reserve requirement ratio would not
materialise in Q2 at least, unless a surge in bank lending prompted the central
bank to give lenders further leeway.
     The PBOC has already trimmed the amount of liquidity it pumps into the
interbank market, suspending daily open-market operation for 18 sessions in a
row until this Tuesday, when it injected a relatively modest CNY40 billion. It
rolled over a CNY200 billion one-year medium-term lending facility and offered
CNY160 billion in 7-day reverse repos, but this fell short of the CNY366.5
billion in MLF maturities.
     Chen agreed that it was too early to say whether exports would remain
strong. Growth data may reflect the effects of credit expansion, fiscal stimulus
and a buoyant stock market, he said.
     The PBOC, retaining its neutral stance, is unlikely to cut its benchmark
lending rate, but could still try to reduce firms' financing costs via other
means, Chen said.
     Zuo Xiaolei, research fellow of the counsellors' office of the State
Council, told MNI that policymakers are still intent on stabilising economic
growth. But she said the central bank should moderate its easing and more
precisely target the flow of liquidity.
     "Growth in the money supply should match nominal GDP growth, or else
excessive liquidity will trigger speculation in sectors enjoying high returns,
such as the property market, instead of serving the real economy," Zuo warned.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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