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MNI (London)
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
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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