MNI China Daily Summary: Friday, August 9

     YUAN: The Chinese currency has "more basis to be kept basically stable"

after it breached 7 against the U.S. dollar on Aug 5, and won't likely repeat

the plunge seen in August 2015, said Ma Jun, a monetary policy committee member

at the PBOC. The yuan's plunge in 2015 followed years of surge tracking the

dollar, which rose 26% in 2011-2015, thus facing depreciation pressure. In

contrast, both the yuan and the dollar have been stable this year, according to

Ma. The yuan has been more flexible in recent years, closer to the rate of

volatility of major currencies, while companies and banks are more used to

two-way yuan movement, said Ma. The plunge in 2015 followed large capital

inflow, some of which evaded regulators, and thus creating quick outflow

pressure following the currency's drop, Ma added.

     YUAN: The yuan weakened to 7.0520 against the dollar from Thursday's close

of 7.0443. The PBOC set the dollar-yuan central parity rate above the 7 level

for a second trading day at 7.0136, compared with 7.0039 set on Thursday.

     DATA: CPI rose to 2.8% y/y from June's 2.7%, hitting a 17-month high, data

released by the National Bureau of Statistics showed. An MNI survey of

economists had projected 2.7%. PPI fell 0.3% y/y from June's 0.0%, the lowest

level since August 2016, missing the -0.1% forecast by MNI. Further monetary

easing may be constrained by recent price pressures, according to economists. 

     PBOC: The PBOC conducted the third central bank bills swap (CBS) operation

to support the issuance of perpetual bonds by commercial banks. The CBS, valued

at CNY5 billion, are open to primary dealers at a fixed rate at 0.1%, according

to a statement on the PBOC website. The swap will be due on November 8, 2019,

the statement said. The CBS scheme allows dealers to swap the perpetual bonds

they hold for central bank bills, which will boost market demand for perpetual

bonds.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 14th day,

leaving liquidity unchanged, according to Wind Information. Liquidity in the

banking system is reasonable and ample, the PBOC said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.6273% from Thursday's close of 2.5391%, Wind

Information showed. The overnight repo average increased to 2.5967% from

Thursday's 2.4948%. 

     BONDS: The yield on 10-year China Government Bond was last at 3.0200%, down

from the close of 3.0450% on Thursday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index decreased 0.71% to 2,774.75. Hong

Kong's Hang Seng Index fell 0.69% to 25,939.30. 

     FROM THE PRESS: China should continue to liberalize its exchange rate while

strengthening the monitoring of the FX market to prevent excessive and abnormal

currency fluctuations, the Economic Daily reported citing Guan Tao, a former

director of the International Payments Department at the State Administration of

Foreign Exchange. Market players should be better adapted and tolerant of

two-way fluctuations in the yuan, and focus on economic fundamentals, Guan was

cited as saying. Radical policies and erratic behaviours from the U.S. and

frequent verbal interventions from that country had created uncertainty and

increased volatility in global markets, Guan said according to the daily.

     China's CPI growth is likely to remain below 3% this year without any

inflationary pressure, the China Securities Journal said in a front-page

commentary. Keeping prices stable is an important focus of policymakers, the

newspaper said, noting that the government had repeatedly stressed that it would

ensure the supply of daily necessities such as fruits, vegetables, meat and

eggs. Food price gains are unsustainable, the newspaper added.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]