REPEAT: MNI Policy:China, US Reach Consensus On Key Issues: Yi

Repeats Story Initially Transmitted at 10:11 GMT Mar 10/06:11 EST Mar 10

     BEIJING (MNI) - Chinese and U.S negotiators reached agreement on "many

crucial and important" issues, the People's Bank of China (PBOC) Governor Yi

Gang told reporters Sunday when asked on the progress over the yuan exchange

rate issues in the trade talks.

     Here are the key takeaways from the response to the media's questions by Yi

and Pan Gongsheng, deputy governor and the head of the State Administration of

Foreign Exchange:

     - China and the U.S. discussed how to respect each country's monetary

authority's autonomy deciding monetary policies, adhering to the principle of

letting the market decide exchange rate, living up to promises made in each G20

summit, such as not engaging in competitive devaluation or using exchange rate

for competition and maintain close communication on FX markets, as well as data

disclosure according to IMF rules, Yi said. 

     - Having a stable yuan doesn't imply a certain level against the dollar,

and yuan's value must be flexible to benefit China's economy and stabilize the

country's international payment, Yi said. The currency was "quite stable" in

2018 and its volatility was much smaller than that of sterling/dollar and

euro/dollar, Yi said. 

     - The exchange rate isn't China's main focus while making monetary policy

which prioritizes domestic situation, and the expectation on the yuan exchange

rate has become more stable after China introduced more hedging tools and pushed

for more market-based reform, Yi said.

     - There is "certain room" for the country to cut reserve requirement ratio

(RRR) cuts, but it is not as big as that in the past few years. The current

level is not high compared with advanced economies after making five cuts

totaling 3.5 percentage points since 2018, said Yi. Policymakers also need to

consider risk prevention and good use of resources while deciding RRR level. The

PBOC will further simplify the framework of the RRR system and treat big, medium

and small banks accordingly, Yi said.

     - The PBOC seeks to reduce funding cost by lowering risk-free interest

rates, including 7-day repo rate and yield of 10-year china government bond, and

by lowering risk premiums faced by small and private companies. It will seek to

remove "monopolistic issues" in interest rate formation, encourage competition,

improve transparency and bankruptcy procedure, Yi said.

     - PBOC will improve countercyclical adjustment and maintain the expansion

of M2 and total social finance to match the growth of nominal GDP in accordance

with "neither too loose nor too tight" money supply, said Yi. Setting monetary

policy also needs to account for China's intertwined relationships with the

global economy, Yi said.

- International payment will remain balanced in the long term, said Deputy

Governor Pan Gongsheng. China's  current account is supported by robust

manufacturing and slowing deficit in service sector, while the capital account

inflow is also increasing given growing FDI and participation in domestic

financial markets by foreign capital, Pan said.

     - Orderly bond defaults are "normal" as they help deal with implicit

guaranteed payments, correct market distortions and normalize price formation

system, said Pan. The PBOC will improve rules on bond settlement and control the

impact of payment defaults, he 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