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--Central Bank Should Look At Implementing New Rate Suite, Up Transparency
BEIJING (MNI) - The People's Bank of China (PBOC) should maintain its
'tight bias' when formulating long-term monetary policy to discourage imprudent
bank lending and maintain balanced growth, a senior research official at the
central bank said.
The economy could easily overheat again as lenders discount risk, knowing
they are backed by the government, Sun Guofeng, director of PBOC's financial
research institute, wrote in an article for the 2018 Jingshan Report.
Sun urged an end to government bailouts and implicit guarantees, while
allowing orderly bankruptcies and defaults to curb undisciplined lending.
--NEW POLICY INSTRUMENT
Sun also urged reform of the main monetary policy instrument -- the
benchmark loan and deposit rates.
"We need a policy rate system, including short-term and medium-term rates,"
Sun said. The central bank can expand the use of collateral, including CGBs,
higher-ranked LGBs and corporate bonds to elevate policy rates in guiding market
expectation, he said.
Another important policy reform advocated by Sun is an increase in
transparency. Following volatility in both stock and forex markets in recent
months, policymakers have reiterated the importance of managing market
expectations and improving transparency should be key, Sun said.
A lack of transparency over PBOC liquidity management caused unnecessary
market volatility, he said.
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