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BEIJING (MNI) - EXCLUSIVE: A benchmark for setting Chinese companies' cost
of borrowing may edge lower after the People's Bank of China (PBOC) cut a money
market rate Wednesday, but further monetary easing may be limited to lowering
banks' reserve requirements as economic data improves and inflation rises in the
first quarter of 2020, former PBOC officials and policy advisors told MNI. The
central bank cut its 14-day reverse repo rate by 5bps on Wednesday, the first
cut since February, 2016, in a move that means that the Loan Prime Rate due to
be announced on Friday should be slightly lower. Investors have been expecting
it to stay stable at 4.15%.
TRADE: China's Ministry of Commerce declined to confirm that the signing of
the Phase One deal will take place in January as claimed by U.S. officials.
Negotiators are in close contact on the follow-up work including the signing of
the agreement, spokesman Gao Feng said at a regular briefing on Thursday
responding to a request for confirmation that signing would take place in the
first week of January.
LIQUIDITY: The PBOC injected CNY30 billion via 7-day reverse repos and
CNY250 billion via 14-day reverse repos with rates unchanged, netting CNY280
billion additional liquidity. The central bank will conduct flexible open market
operations and maintain stable liquidity for the yearend, it said.
RATES: The seven-day weighted average interbank repo rate for depository
institutions (DR007) fell to 2.3473% from Wednesday's close of 2.5472%, data by
Wind Information showed. The overnight repo average decreased to 2.0400% from
YUAN: The currency weakened to 7.0079 against the dollar from Wednesday's
6.9996 close. PBOC set the dollar-yuan central parity rate at 7.0025 following
BONDS: The yield on 10-year China Government Bonds was last at 3.2225%,
down from Wednesday's close of 3.2325%, according to Wind Information.
STOCKS: The Shanghai Composite Index closed at 3,017.07, little change from
yesterday. Hong Kong's Hang Seng Index lost 0.30% to 27,800.49.
FROM THE PRESS: Local government special purpose bonds will be issued in
the first half of January, 21st Century Business Herald reported citing
anonymous sources. PBOC needs to lower the deposit-reserve ratio to hedge the
impact of the issuance on liquidity, the newspaper said citing Hua Changchun,
Chief Economist with Guotai Junan Securities.
The yuan trading seven to the dollar is no longer a psychological
threshold, the China Securities Journal said in a commentary. While the Chinese
currency weakened past what some had considered a crisis point, massive capital
outflows had not followed, the journal said.
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