REPEAT: MNI: China Needs Single Policy Rate: Fmr PBOC Econ

Repeats Story Initially Transmitted at 04:50 GMT May 23/00:50 EST May 23

--China Needs to Streamline Objectives for Monetary Policy: Ma Jun

     BEIJING (MNI) - China's most urgent task for interest rate reform is to

clarify the policy rate that can effectively guide financial markets, Ma Jun,

former chief economist of the People's Bank of China, told MNI in an exclusive

interview.

     "There are too many 'quasi-policy' rates resembling roles of policy rates

including various repo rates, rates of Standing Lending Facility(SLF),

Medium-term Lending Facility (MLF) and Pledged Supplementary Lending (PSL), in

addition to the traditional bench-mark lending and deposit rates. This may

confuse the market," said Ma. 

     Too many "quasi-policy" rates could lead the market to misunderstand policy

signals, distort market expectations and even the yield curves, said Ma, who is

now director of Center for Finance and Development at Tsinghua University, one

of China's top think tanks. 

     --ONE POLICY RATE

     Ma detailed his points in his recent book on "interest rate liberalization

and monetary policy framework reform" co-authored with Guan Tao, former head of

the Balance of Payments department at the State Administration of Foreign

Exchange(SAFE).

     China could therefore eliminate the benchmark deposit and loan interest

rates and replace them with a formal policy rate, such as a 7-day repo rate,

said Ma.

     Other rates on monetary policy tools, including that of SLF, MSL and PSL

should be only used for structural adjustment purposes on an ad hoc basis and

should not be given the same degree of importance as the policy rate, Ma said.

--POLICY OBJECTIVES

     Monetary policy should simplify its objectives into three major themes:

inflation, employment and financial stability, said Ma, as having too many

objectives could lead to confusion of policy signals, destabilize market

expectations and lessens the effectiveness of policies.

     In addition, the correlations between M2 and economic growth and inflation

have weakened significantly, so the monetary policy framework should not be

based on quantitative controls, the economist said.

     As, starting from this year, M2 money supply is no longer an intermediate

target of monetary policy, it adds to the urgency of clarifying the new

intermediate target, or the policy rate in the new monetary policy framework, Ma

noted.

--STABLIZE LEVERAGE

     As China's deleveraging campaign enters a second year, "policymakers should

focus on stabilizing leverage, not sharply deleveraging, considering a rapid

fall of leverage could severely impact the real economy, or even generate some

financial risks," Ma said.

     According to the last Monetary Policy Report, issued by the PBOC on May 11,

the macro leverage ratio (outstanding debt of non-financial companies,

governments and household/GDP) rose by 2.7 percentage points to 250.3% as of the

end of 2017, compared with an average annual increase of 13.5 percentage points

in 2012-2016.

     However, challenges to containing debt remain, particularly given

difficulties in controlling local governments' tendency to increase borrowing

and boost their GDP performances, Ma said.

     "Coordinating the policies of local government and deleverage targets

remains a challenge," Ma said.

     According to Ma's research, there are over 5,000 development zones at the

national and provincial level in China with about CNY50 trillion of funding

demand for infrastructure. If all the demand is met, the leverage ratio would

rise further, Ma warned. 

--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; tel: +44 203-586-2225; email: les.commons@marketnews.com