REPEAT: MNI SOURCES: China PBOC To Maintain Loose Policy Bias

Repeats Story Initially Transmitted at 11:20 GMT Mar 7/06:20 EST Mar 7

--Scrapping M2 Growth Target Not Sign of China Policy Tightening: PBOC Source

--China M2 Seen Increasing More Than 9% in 2018: PBOC Source

--China M3 To Expand Rapidly As Capital Raising Increases: PBOC Adviser

     BEIJING (MNI) - The People's Bank of China is likely to maintain a

"neutral-to-loose" policy bias this year, contrary to a perception that the

world's second-biggest economy is tightening liquidity to reform its economy,

two well informed monetary sources told MNI. 

     Broad money supply, as measured by M2, may expand by more than 9% this

year, higher than both last year's 8.2% growth and estimates by other officials,

a senior PBOC source told MNI.

     Including deposits by other financial institutions, the M3 indicator may

expand "rapidly," said another source, an adviser to the PBOC.     

     A prospect of tighter policy arose Monday in Premier Li Keqiang's report to

the opening session of the annual National People's Congress. For the first time

in nine years, the government's address didn't set expansion rates for key M2

data in its government working report, as well as doing away with detailed

credit and total social financing growth. Li instead pointed only to maintaining

"reasonable growth." 

     That omission created a major stir, with some analysts interpreting the

comments as a sign of "tight balance" on monetary policy. Already, M2 has been

on a slowing growth curve, with the rate of expansions last year down by 3.1

percentage points from 2016 to 8.2% and much lower than the 12% target set in

the previous government work report. 

     --NOT TIGHTENING

     Against the backdrop of a campaign to deleverage and regulate the shadowy

financial trading sector, last year's total social financing, a measure of the

overall availability of money in the economy, merely matched the targeted growth

rate of 12%.

     This doesn't mean the second-largest economy will continue with a

tight-based monetary policy this year, the senior PBOC source said. 

     Ensuring China implements its economic strategies smoothly, including

industrial upgrading and regional development, demands a large amount of

capital, the PBOC adviser said. 

An overly tight policy bias would produce negative consequences, such as

destabilizing the exchange rate and weaken China's export advantage, said the

senior source, adding the yuan will be kept between 6.3 and 6.5 against the U.S.

dollar to maintain stability.  

     --DELEVERAGING TO EASE

     As inflation has been kept under the targeted 3%, there is no need to adopt

tighter monetary policy, the PBOC adviser said. The deleveraging campaign will

be loosened this year, especially in the second half, when the economy likely

softens, the adviser said, noting that that should help money supply recover. 

     Given a lower base of comparison in 2017, M2 is more likely to exceed 9%,

the senior PBOC source said. 

     --LONGEST-SERVING GOVERNOR

     A central bank under new leadership this year may give greater emphasis to

serving the country's development priorities after the expected handover of the

governorship, the senior PBOC source said. 

     The longest serving central bank governor, Zhou Xiaochuan has pushed for

market-oriented reform during his 15-year tenure. However, liberalization of the

market might not the priority for any newcomer, the PBOC adviser said. 

     Monetary policy will maintain a "neutral-to-loose bias at an appropriate

pace," in coordination with somewhat less-proactive fiscal discipline, the

adviser added.

     However, China downgrading the M2 growth target does mean it is

deprioritizing associated tools, including Open Market Operation (OMO) and

Reserve Requirement Ratio (RRR), in the process of conducting monetary policy,

the adviser noted.

     --MATURE CAPITAL MARKET

     The new policy approach will further optimize the interest rate corridor to

reflect the true price of capital and encourage forming a mature capital market,

the PBOC adviser said.

     Premier Li, in his report, stressed increasing "the proportion of direct

financing, particularly equity financing", giving a blessing to the capital

market's development.

     That could signal a run-up in stock and bond markets, the adviser said.

Some state funds, including social security fund, will increasingly invest in

the stock market and some special bonds and special funds will be launched to

support infrastructure and the outgoing strategy, he noted.

     And M3 growth will accelerate as direct fund-raising expands, the adviser

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