MNI INTERVIEW: PBOC In No Rush To Follow Fed: Former Official

     BEIJING(MNI) - The People's Bank of China will not rush to follow its major

overseas counterparts in cutting rates, a former PBOC official told MNI, saying

coronavirus is now under control in the country and the economy has started to

recover.

     The PBOC left the rate of its medium-term lending facility unchanged on

Monday, although it did use the MLF to inject CNY100 billion of liquidity. A

reduction in banks' reserve requirement ratio, announced last Friday, took

effect today, unlocking CNY550 billion in long-term funds.

     "Policy should focus on lowering borrowing rates for the real economy

rather than for money markets, otherwise it will just drive real estate and

equity prices higher," said Sheng Songcheng, former head of the PBOC's

statistics and analysis department. "So we would rather choose targeted

facilities, such as targeted cuts in reserve requirements and rates ... Fiscal

policy will take the leading role."

     The multiple tasks of monetary policy have constrained the central bank's

easing pace, Sheng said, explaining that its priority should be providing ample

liquidity to restore operations and to assist companies suffering any severe

liquidity crunch.

     --YUAN SUPPORTED

     Policy makers will be keen to avoid any significant appreciation of the

yuan as rates fall elsewhere, Sheng said, noting that the Chinese currency

should also be supported by economic recovery.

     Key economic indicators sank to all-time lows in the first two months of

the year, as industrial output, retail sales and fixed-asset investment all

collapsed, according to Nation Bureau of Statistics data on Monday.

     GDP growth in the first quarter may drop to 0%, Sheng said. The service

sector may lose over CNY1 trillion in added-value output in Q1 and secondary

industry may lose about CNY400 billion.

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

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