MNI China Daily Summary: Thursday, December 19

     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

Wednesday's 2.4672%.

     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

6.9969 yesterday. 

     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.

--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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