MNI China Daily Summary: Friday, September 20

     EXCLUSIVE: China should not follow the U.S. Federal Reserve and cut

interest rates for the moment, although a gathering slowdown might make a cut

necessary in the upcoming months, government advisors told MNI. The Fed's

quarter-point move was a "hawkish rate cut" and has increased uncertainty, said

Xu Qiyuan, director of the Economic Development Division at the Institute of

World Economics and Politics under the China Academy of Social Sciences. The

dollar strengthened against the yuan following the Fed's action, he noted.

     POLICY: The People's Bank of China (PBOC) lowered its one-year Loan Prime

Rate (LPR), the new reference rate for bank loans, to 4.20% from 4.25% last

month to reduce companies' borrowing costs and stabilize the economy. The 5-year

LPR was unchanged at 4.85% from August. The one-year prime rate now sits 15 bps

below the benchmark loan rate with the same duration at 4.35% and 5 bps lower

than its five-year counterpart at 4.90%.

     PBOC: The PBOC plans to issue CNY10 billion six-month central bank bills in

Hong Kong on Sept 26 with the stated aim of improving the yield curve of yuan

bonds in the Territory, according to a statement on the PBOC website.

     LIQUIDITY: The PBOC injected CNY40 billion via 7-day reverse repos as well

as CNY80 billion via 14-day reverse repos. This resulted in a net injection of

CNY120 billion as no reverse repos matured today, according to Wind Information.

The injections aim to maintain stable liquidity at the end of the season, the

PBOC said.

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

institutions (DR007) rose to 2.7994% from Thursday's close of 2.7341%, Wind

Information showed. The overnight repo average increased to 2.7713% from

Thursday's 2.7450%. 

     YUAN: The yuan closed at 7.0901 against the dollar from Thursday's close of

7.0987. The PBOC set the dollar-yuan central parity rate lower at 7.0730,

compared with 7.0732 on Thursday.

     BONDS: The yield on 10-year China Government Bonds was last at 3.0975%,

down from the close of 3.1000% on Thursday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index increased 0.24% to 3,006.45. Hong

Kong's Hang Seng Index edged down 0.13% to 26,435.67. 

     FROM THE PRESS: China does not need to cut interest rates in the short

term, even though cuts by the U.S. Federal Reserve leave more room for the PBOC

to follow suit, the Securities Daily reported. The newly implemented LPR pricing

mechanism is not yet mature, and lowering interest rates soon after the recent

reserve requirement ratio cut intensifies expectations of further easing, the

newspaper said. This in turn increases the market's dependence on rate cuts and

undermine the effectiveness of monetary policy, the newspaper said citing Tao

Jin, a senior researcher at Suning Institute of Finance.

     The Shanghai office of the PBOC said it will encourage investment from

multinational companies in the new Lingang area of the Shanghai Pilot Free Trade

Zone through major financial reforms, so as to simplify cross-border yuan trade

and facilitate trade and investment, the China Business News reported. 

--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

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