MNI: PBOC Must Discourage Imprudent Lending: Research Head

--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.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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