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EXCLUSIVE: The New Year's Day announcement by the People's Bank of China
(PBOC) of cuts to banks' reserve requirement ratios should be followed by
another two to three RRR reductions, totalling as much as 200 basis points, in
order to support growth and ensure financing is available for key regional
spending projects, policy advisors told MNI. Chinese financial institutions may
require additional liquidity of up to CNY3.5 trillion in January, to cope with a
spike in demand before the week-long Chinese New Year holiday starting Jan 24
and to compensate for CNY857.5 billion in maturing PBOC facilities, according to
an estimate from China International Capital Corporation. The 50-basis-point RRR
cut announced Jan. 1, which comes into effect Jan. 6, will only provide CNY800
POLICY: The PBOC will keep a prudent monetary policy appropriately flexible
this year, the central bank said on Sunday following its annual work meeting.
PBOC said its 2020 work guidelines are also to step up countercyclical
adjustments to keep liquidity reasonably ample and the growth of credits and
social financing in line with economic development.
DATA: Caixin China services PMI fell to 52.5 in December from 53.5 in
November. New orders continued to moderately recover while new export order
expanded at the slowest rate in three months, said Caixin. The decline reported
by Caixin was in line with the official PMI for the services sector which
decreased 0.5 to 53.
LIQUIDITY: The PBOC skipped open market operations, draining net CNY50
billion given the maturity of reverse repos, according to Wind Information. The
central bank conducted 0.5 percentage point cut to the reserve requirement
ratios announced on Jan 1, expected to release CNY800 billion long-term funds,
the PBOC said on its website. Total liquidity in the banking system is
relatively high, enough to offset the maturity of reverse repos, PBOC added.
RATES: The seven-day weighted-average interbank repo rate for depository
institutions (DR007) decreased to 1.8516% from Friday's close of 2.0189%, Wind
Information showed. The overnight repo average fell to 0.9986% from Friday's
YUAN: The yuan weakened to 6.9745 against the U.S. dollar from Friday's
close of 6.9716. PBOC set the dollar-yuan central parity rate higher at 6.9718,
compared with last Friday's 6.9681.
BONDS: The yield on 10-year China Government Bond was last at 3.1575%, down
from Friday's close of 3.1700%, according to Wind Information.
STOCKS: The Shanghai Composite Index closed little changed at 3,083.41.
Hang Seng Index lost 0.79% to 28,226.19.
FROM THE PRESS: China's GDP growth is expected to stay above 6% in 2020,
the Shanghai Securities Journal reported citing Sheng Songcheng, a counsellor in
the Shanghai municipal government. While investment expanded the slowest on
record in 2019, high-tech investment growth accelerated to 14.1% y/y in the
first 11 months, 8.9 percentage points faster than total investment, the
newspaper cited Sheng as saying. Sheng predicted that investment in high-tech
industries may account for more than 30% of overall investment in five years,
and more than 50% in a decade, the newspaper said.
Policymakers will focus on cutting the cost of power, communications and
transportation for manufacturers, the Securities Daily said citing Zhang Yiqun,
a member of the Society of Public Finance of China. Chinese manufacturers can
save as much as CNY60 billion on power and CNY60 billion on telecommunication
costs, the newspaper said.
China's December CPI may rise to about 4.8%, according to analysts quoted
by the Economic Information Daily. Meat prices will fall in the second half of
2020 and CPI will fall below 2% y/y in the Q4 this year, the newspaper reported
by citing Qing Tai, a senior analyst with Shenwan Hongyuan Securities.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: firstname.lastname@example.org
--MNI Beijing Bureau; +86 10 8532 5998; email: email@example.com