MNI China Daily Summary: Friday, October 26

     TOP NEWS: The People's Bank of China (PBOC) will continue to use

macro-control policies to stabilise market expectations for the yuan, Pan

Gongsheng, deputy governor of the central bank, said Friday. However, speaking

at a forum in Beijing, Pan did not respond directly to a question as to whether

the PBOC would take further measures to stop the yuan trading above USD/CNY7.0.

     POLICY: The PBOC has been working to expand its monetary policy tools and

improve policy transmission, in a bid to strike a better balance between

implementing macroprudential measures and continuing to support the real

economy, Chen Yulu, PBOC deputy governor told a forum hosted by the ASEAN+3

Macroeconomic Research Office Friday.

     LIQUIDITY: After five straight days of injections, the PBOC skipped open

market operations (OMOs) on Friday, resulting in a net liquidity drain of CNY30

billion, as the same amount of reverse repos matured today, according to Wind

Information. The move resulted in a total net liquidity injection of CNY460

billion for this week. The 7-day weighted average interbank repo average rate

for depository institutions (DR007) decreased to 2.5752% from Thursday's close

of 2.5983%. The overnight repo average decreased to 2.0266% from Thursday's

2.1838%.

     YUAN: The yuan appreciated to 6.9458 against the U.S. dollar from

Thursday's close of 6.9498. The PBOC set the USD/CNY central parity rate weaker

at 6.9510, following Thursday's 6.9409, its weakest since Jan 3, 2017.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.5425%, unchanged from Thursday, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.19% lower at

2,598.85. Hong Kong's Hang Seng Index decreased 1.11% to 24,717.63.

     FROM THE PRESS: Reverse repos have become the norm for the PBOC's open

market operations this year, but monetary policy remains prudent and neutral,

and large-scale monetary easing in the near future is unlikely, the Financial

News, known as the central bank's mouthpiece, said Friday. The PBOC has injected

a net CNY520 billion via reverse repos over the last five trading days. Along

with other tools, such as refinancing and rediscounting, this is expected to

offset any short-term tightening of liquidity conditions amid the October tax

period, the newspaper said. (Link to the story: https://bit.ly/2SkqZqf)

     The yuan is unlikely to weaken beyond 7 in the short term, as U.S. dollar

appreciation is expected to be limited, the Securities Daily said Friday,

quoting analysts. Moreover, with China's economy still growing at a steady pace,

domestic fundamentals do not imply sharp yuan depreciation going forward, said

Wang Qing, chief analyst at Dongfang Jincheng, a credit rating agency. The yuan

closed at 6.9498 against the U.S. dollar on Thursday, its weakest since January

3, 2017. (Link to the story: https://bit.ly/2D5ndwI)

     The China Banking and Insurance Regulatory Commission has given insurance

firms the green light to set up special products to help resolve 'equity pledge'

risks and ease liquidity conditions for listed companies, the Economic

Information Daily reported Friday. Such products could include stocks of listed

companies, bonds issued by listed companies and their shareholders, and

non-publicly issued exchangeable bonds, the Daily said. (Link to the story:

https://bit.ly/2JiyXfN)

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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