MNI EXCLUSIVE: PBOC To Cut Rates, RRR In Virus Fight: Advisors

     BEIJING (MNI) - The People's Bank of China will act further to support the

economy and stabilise market sentiment as Beijing battles coronavirus, policy

advisors told MNI, but one noted that supply constraints as a result of the

disruption caused by the disease could put pressure on consumer prices and limit

the potential for monetary easing.

     The central bank is likely to continue providing liquidity to ease pressure

on companies forced to suspend operations, said Sheng Songcheng, former head of

the PBOC statistics and analysis department, noting there was still room for

targetted cuts to both lending rates and reserve requirements.

     As financial markets reopened Monday following the extended Lunar New Year

holiday, the PBOC cut the 7-day reverse repo rate to 2.4% from 2.5%, and the

14-day reverse repo rate to 2.55% from 2.65%, injecting a net CNY150 billion.

     --MARKET STABILISATION

     "Without the prompt reaction by the PBOC in coordination with other

authorities, the market would see more volatility," Sheng said, referring to

Monday's 7.7% fall in the Shanghai Composite stock index.

     Zhang Ming, senior fellow at the Chinese Academy of Social Sciences, also

expected reductions across the PBOC's rate suite, with perhaps as much as 70 bps

being trimmed from the Loan Prime Rate throughout 2020. This would help lower

the government's funding cost this year, he said.

     But supply disruptions could mean the recent easing in inflation could

slow, Zhang Ming said, noting that this could put a limit to rate cuts before

the first quarter was out.

     Such a development would boost the importance of market liquidity

operations, he said, adding that from the second quarter the year could also see

another two to three cuts in banks' reserve requirements.

     Others also saw lower rates ahead. Dong Ximiao, a special researcher with

the National Institution for Finance and Development, said the central bank

could cut its Medium-term Lending Facility rate by 5 bps in mid-February.

     "The monetary authority may want to guide the (benchmark) LPR lower by

easing the MLF, reducing the cost of capital for the real economy," Dong noted.

     Yu Yongding, a former member of the PBOC's monetary policy committee, told

MNI the suspension of factory operations would become a major issue going

forward, saying the "government should pay the bill via fiscal and monetary

policy."

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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