MNI Policy: China Needs Moderately Loose Monetary Policy: PBOC

     BEIJING (MNI) - China needs loose monetary conditions to revive its slowing

economy, though the extent of the loosening may be limited by factors including

the need to protect the currency, Yi Gang, governor of the People's Bank of

China, said at a forum in Beijing on Thursday.

     China's current account surplus this year may only be 0.1-0.2% of the GDP,

Yi said. It needs to increase the flexibility of the yuan to deal with internal

and external risks confronting the economy, Yi said. 

     Shadow banking, unusual volatilities of the market, external impact and

credit risks of key industries are considered "major risks," Yi said.

     China's macro leverage has been stable since last year at about 250% of the

economy, Yi said. However, Yi warned against risks that external impact on

monetary policies may spread into debt, FX and stock markets. A strong dollar

and trade frictions caused pressure on the yuan, Yi said. 

     In formulating policies, China needs to consider the following four

aspects: keeping prudent and neutral monetary policy with proactive and fine

adjustments, coordination of policies that moderate the expansion and

contraction of credit, utilizing multiple sources to channel funding to private

and small businesses, deepening financial reform and "smoothening the

transmission mechanism of monetary policies," Yi said. 

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

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