MNI POLICY: PBOC Not Likely to Cut Rate in Q4, Advisor Says

     BEIJING (MNI) - The People's Bank of China will probably continue to leave

interest rates unchanged in Q4, given that major economic data including social

credit indicators will grow at a stronger pace from last year's low base of

comparison, said Zhang Bin, a senior follow at the China Finance 40 Forum, a

prominent think tank. However, Zhang still advocates for a rate cut to stimulate

the softening demand amid below-expectation growth. 

     Here are main takeaways of Zhang, also head of global macroeconomic

research at Institute of World Economics and Politics at the Chinese Academy of

Social Sciences (CASS), who spoke to the press on Tuesday:

     - Further easing is necessary to expand credit since the general credit -

total social finance plus government bonds issuance - has been shrinking this

year.

     - Monetary policy should not be constrained by the short-term rise in CPI.

The 3% CPI last month was mainly due to higher costs of food, particularly pork,

so it didn't accurately reflect the general price level. Core CPI dropped to

1.5% while PPI showed a negative growth at -1.2% on yearly basis. Manufacturing

PMI has been in the contraction zone for some months. In this situation, policy

makers should consider more the indexes less impacted by supply shock.

     - The yuan may continue to be under depreciation pressure yearend due to Q4

economic slowdown, though the positive outlook on a deal between China and the

U.S could bolster sentiment. There is no obvious sign that capital outflow is

increasing amid the trade tensions compared with the same period in 2015 and

2016. The PBOC should allow the yuan a wider band of fluctuation to help

stabilize the economy.

     - General government debt and infrastructure investment should be allowed

to expand enough to guarantee a growth above 6% in Q4. The quota for local

government special bond needs to be further increased. 

     - GDP may drop below 6% in the first quarter due to weak demand and

external uncertainties. 

     - A sharp drop in property prices could pose risks to the entire financial

sector and even the whole economy given a large amount of collaterals for bank

loans is property assets. Tightening credit supply to the property sector in the

midst of an economic slowdown could stall social financing and reduce the

purchase capacity of the society as a whole.

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

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