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REPEAT: MNI: PBOC To Keep Liquidity Adequate Amid Deleveraging

--Repeats Story Initially Transmitted At 1323GMT August 21
     BEIJING (MNI) - The People's Bank of China (PBOC) will strike a balance
between pressing ahead with its deleveraging drive and ensuring a "reasonable
and adequate" supply of liquidity to the economy, Zhu Hexin, the newly-appointed
vice governor of the central bank, said at a press conference on Tuesday.
     The following are the key points that were discussed:
     - Enhancing the monetary transmission mechanism: Zhu pointed to subdued
risk appetite among Chinese lenders and the poor creditworthiness of some firms
as key factors that are currently constraining the supply of liquidity to the
real economy. "Sometimes the financial system has money, but hardly lends it
out," Zhu said, explaining the slow pace of credit growth. To address this
issue, the PBOC will launch more credit-supportive policies (including via
greater use of relending and rediscounting tools), to encourage lenders to use
the capital unlocked via recent RRR cuts to increase SME lending.
     - Maintaining a 'reasonable and adequate' liquidity supply: Zhu noted that
the volume-weighted average rate of the benchmark seven-day repo traded in the
interbank market dropped to about 2.6% in mid-August from 2.9% at the end of
July, effectively functioning as a "rate cut" and indicating that liquidity
supply remains adequate. In turn, this is helping the Chinese economy to weather
a slowdown in domestic economic growth and is providing a cushion against the
negative impacts of the ongoing China-U.S. trade dispute, Zhu suggested.
     - Exchange rate support: Li Bo, director general of the PBOC's monetary
policy department, told reporters that the central bank has conducted
counter-cyclical management of the yuan when necessary. However, he emphasised
that overall, the exchange rate has become more flexible and is primarily driven
by economic fundamentals, which currently remain favourable.
     - Deleveraging campaign is generating results: Ji Zhihong, head of the
PBOC's financial market department, said that leverage ratios among companies
are declining and that the central bank is more closely scrutinising the
'invisible debt' of local governments. He added that household credit grew at a
slower pace in the second quarter. Reflecting these dynamics, China's overall
macroeconomic leverage ratio (debt as a share of GDP) eased to 248.90% by the
end of Q2, Ji noted.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MGQ$$$]

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