Update: PBOC has no plans to buy local govt debt

[BEIJING] China is not about to launch its own quantitative easing (QE) by having its central bank buy local government bonds, the chief economist at the People's Bank of China was quoted by local media as saying on Tuesday.

Mr Ma Jun told Yicai.com in an interview that China's central bank has enough monetary policy tools at its disposal to sustain reasonable growth in liquidity and money supply.

His remarks come after banking shares rallied on Tuesday on speculation that the central bank was considering new ways to inject liquidity into banks. Mr Ma confirmed separately that his interview with Yicai.com was accurate.

Sources told Reuters on Monday that the PBOC was considering purchasing assets from commercial banks.

The Wall Street Journal, also citing unidentified sources, reported on Tuesday the central bank was planning to allow Chinese banks to swap local-government bailout bonds for loans as a way to bolster liquidity and boost lending.

Yicai.com quoted Mr Ma as saying that there was "no need to directly buy newly-issued local government bonds in the form of QE to expand the monetary base".

He said China would pursue prudent monetary policy this year, and a plan to swap 1 trillion yuan (US$161.20 billion) of high-interest local government debt for government bonds would not tighten liquidity conditions. He did not comment on the prospect of the central bank buying other types of financial assets from banks.

A former economist at Deustche Bank, Mr Ma also said the central bank had no plans to accept local government bonds as collateral when extending loans to commercial banks.

REUTERS