MNI Policy: Money Supply to Be 'Neither Loose Nor Tight': PBOC

By William Bi

     BEIJING (MNI) - Here are the main takeaways from a Friday briefing on

January monetary supply by officials from the People's Bank of China (PBOC),

including Sun Guofeng, director of monetary policy department; Ruan Jianhong,

director of statistics and analysis; Zou Lan, deputy head of financial markets:

     On the prospect of rate cuts: The PBOC will promote the convergence of

lending and deposit rates and money market rates, further utilize the central

bank's policy rates as guidance for market and borrowing rates. From the twin

perspectives of actual outcome and the progress of promoting the marketization

of interest rates, one shall pay more attention to the changes in the effective

bank loan rates.

     On whether the PBOC has changed monetary policy stance: There have been no

changes to the orientation of prudent policies. Monetary conditions should match

with the requirement of ensuring stable economic growth and inflation: it can't

be loose nor tight.

     On the greater use of bills: Businesses are more willing to raise money

through bills given their declining rates. Relative to loans and other

financing, bills carry shorter terms, are more flexible and liquid, therefore an

important channel for small-and-medium businesses. Rediscount policies also

increased the optimization of guidance for credit structure. SMEs make up more

than 60% of the companies using bill financing. Bills also have the advantage of

speeding up payables and cash flow.

     On banks' ex-balance sheet capital raising: Capital-raising through

ex-balance sheet items rapidly slowed from the second half of 2017 to 2018 due

to structural deleveraging. Now the rate of decline has slowed.

     On M1 slowing and whether there may be negative M1 growth in February or

March, given high base of comparison from last year: PBOC mainly tracks M2 as

gauge for broad money supply and aggregate financing to the economy because it's

closer related to economic growth and consumer prices. M1 is a monitoring

indicator. While we can analyze reason for its changes, its relationship with

economic growth and inflation isn't very stable.

     M1's further decline doesn't indicate changes to the overall liquidity, but

the structural changes. As end-January was close to the Chinese New Year (on Feb

5), it was the peak of bonus issuance, which caused a sharp drop in non-term

deposits.

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

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