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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
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