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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
     "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:
--MNI London Bureau; +44 203 865 3829; email:
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