MNI INTERVIEW: China RRR Cut Likely In April,Rate Cut Mid-Year

By Iris Ouyang

     BEIJING (MNI) - The People's Bank of China could cut banks' reserve

requirement ratio this month followed by as many as two more cuts in 2019, and a

benchmark interest rate reduction could come in the middle of the year if the

economy slows further, a researcher at a government think tank told MNI in an

interview.

     "It is possible that the PBOC could adjust its monetary policy to increase

liquidity, most likely through RRR cuts rather than by cutting the benchmark

interest rate, depending on the first quarter's economic performance," said

Zhang Huanbo, deputy director of the U.S.-Europe Research Institute and a

macro-economy researcher at the China Center for International Economic

Exchanges, a think tank managed by the economic planning body National

Development and Reform Commission.

     Too early an interest-rate-reduction could send an over-strong loosening

signal to market participants, Zhang said, but a cut is likely in mid-2019.

     "It could come in June, July or August based on the economic situation in

the first half. It would be possible because the U.S. Fed is leaning towards not

increasing its own benchmark interest rate, so if we reduce ours a bit we would

stand to benefit."

     "If the economy slows in the first half to such as 6%, the central bank

will be very likely to cut the interest rate," he stressed.

     The PBOC is less likely to adjust rates for its open market operations or

medium-term lending facilities, Zhang said, but he predicted a total of three to

four RRR cuts in 2019, including January's , each time by around 0.5 to 1

percentage point.

     "Our monetary gap at the end of last year was around CNY3 trillion, so two

percentage points would be enough, as one percentage point can release CNY1

trillion," he said. "It would not only rely on RRR cuts but also on coordination

of other monetary policy tools. The central bank can inject liquidity through

targeted loans and its medium-term lending facility."

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

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

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