MNI POLICY: PBOC Says No Foundation for Sustained Inflation

     BEIJING (MNI) - China "does not have a foundation for sustained inflation

and deflation" but will closely watch the momentum of relevant indicators and

work to prevent such expectations from growing, Sun Guofeng, the director of

monetary policy department at the People's Bank of China, told reporters.

     China CPI jumped to 3% year-on-year in September, reaching the official

ceiling set by the government for the year in March, and the highest level in

almost six years, while producer prices contracted further, data by the National

Bureau of Statistics showed Tuesday.

     Here are the key points by officials at the PBOC's quarterly press

conference on Tuesday, including Sun and Ruan Jianhong, the central bank's

director of statistics and analysis.

     - Market interest rates have been sharply down. The across-the-board as

well as targeted reserve requirement ratio cuts in September were conducive to

reducing the cost of bank funds and risk premium. It is now more important to

clear the transmission channel of the monetary policy through reform, Sun said.

     - The two consecutive reductions in the offering of loan prime rate were in

line with market expectations and have had positive market reaction. About 56%

of the current loans by banks used LPR as a pricing benchmark with higher

proportion of utilization by large banks. New loans now mainly refer to LPR for

pricing and the previous loan prime rate will be phased out gradually, said Sun.

     - The actual corporate loan rate in September was 5.24%, Sun said.

     - Policy lenders (such as China Development Bank) have met demand for funds

through debt issuance as the market rates have fallen, that is why the early

issuance of Pledged Supplementary Lending slowed, Sun said.

     - Growth in social financing is expected to remain stable. The faster M2

growth rate was result of the central bank maintaining "appropriate" level of

monetary policy while enhancing commercial banks' ability to use funds. The

currency multiplier is currently 6.38, a historically high level. Real economy's

demand for capital remains strong, with 60% of banks believing credit demand

will continue to strengthen in Q4, according to a PBOC's survey, Ruan said.

     - Macro leverage ratio remains stable overall with limited range for

increase, Ruan said.

     - - The total amount and structure of business loans are improving, while

medium- and long-term loans rebounded in August and September, medium- and

long-term loan growth in infrastructure was faster, that of manufacturing

industry significantly rebounded, said Ruan.

     - The expansion rate of real estate loans has slowed for 14 consecutive

months. Structural monetary policy has achieved positive results, the growth

rate of loans to small businesses accelerated, and the flow to labor-intensive

industries such as manufacturing also increased, accounting for 70% of the

total. The central bank will continue to increase the support of small and

micro-businesses, Ruan said.

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

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

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