MNI POLICY: PBOC Says Retreating from Pandemic Monetary Easing

     BEIJING (MNI) - The People's Bank of China has begun to withdraw special

easing facilities aimed at supporting the economy through the Covid-19 pandemic,

central bank officials told reporters in a briefing on Friday, adding that the

PBOC will signal a moderate and flexible stance as growth recovers in the second

half.

     Temporary easing facilities, including relending, rediscounting and excess

liquidity injection, will be retired as financial markets normalise and

countercyclical moves function effectively, said Guo Kai, deputy director of the

PBOC monetary policy department. Stimulus implementing in the first half totals

about CNY9 trillion, he said.

     From now on, credit supply will be kept in line with the pace of economic

recovery, to prevent excess liquidity from building within the financial system,

and financing costs will continue to decline in synch with economic growth, in

order to avoid arbitrage and speculation, Guo said.

     The central bank will ensure reasonable and ample liquidity and push actual

lending rates and corporate funding costs significantly lower, he said.

Traditional monetary tools, such as reserve requirement ratio and rate cuts,

will be more effective as policy normalises, Guo said.

     The economy is recovering with both consumption and investment improving

"marginally," said Wang Xin, head of the PBOC's research bureau. Investment will

be a critical driving force for the remaining months' growth as exports may

decelerate, but positive monthly producer price inflation in June is a sign that

manufacturing and industrial production are improving, he said.

     The overall macro leverage ratio might have risen in the second quarter,

said Ruan Jianhong, head of the statistics department, stressing that this is

reasonable as the financial sector is strengthening support to the economy.

     The risk of shadow banking, mainly involving wealth management products,

has been further reduced as funds from interbank transactions are growing at a

slower pace, investment in non-standard products decline and the relative

leverage ratio grows moderately , Ruan said. WMP assets totalled CNY90 trillion

as of the end of May, she said.

     Guo also explained how the government's goal of requiring banks to forego

CNY1.5 trillion in profits to reduce businesses' costs will be achieved. About

CNY930 billion will come from lowered rates on loans, bonds, and refinancing

tools, he said. Another CNY230 billion will be from allowing small businesses to

postpone loan payments until as late as March 2021, while CNY320 results from

banks' cutting capital-raising fees, Guo said.

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

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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