MNI China Daily Summary: Thursday, March 22

     TOPS NEWS: The People's Bank of China hiked the lending rate on short-term

loans to commercial banks by 5 basis points following the decision by the U.S.

Federal Reserve to lift benchmark rate by a quarter point. The PBOC raised the

rate on 7-day reverse-repurchase agreements (reverse repo) to 2.55%. The

modest-scale hike was "normal response" to the U.S. move and fell within the

market's expectations, the bank said in a separate statement on its website.

***COMMENT: The scale of the rate hike was smaller than 10 basis points some

economists had expected. The relatively good liquidity condition since the start

of 2018 indicated that the PBOC has slightly relaxed its monetary policy stance,

though the central bank had restated its ultimately "neutral" bias. This

measured loosening provides a better environment for implementing stricter

regulations without triggering large-scale instability.

     EXCLUSIVE (Published before the PBOC rate hike announcement): China's

central bank is likely to raise the lending rates in interbank markets by 10 bps

in step with U.S. Federal Reserve, Ming Ming, a former official at the central

bank's Monetary Policy Division told MNI. "The central bank may combine cash

injection via open-market operations and hikes in money-market rates to

stabilize growth and push forward deleveraging campaign simultaneously," said

Ming, who is now the chief economist of CITIC Securities, the country's biggest

brokerage. 

NEW: China removed some restrictions for foreign financial institutions entering

China's payment market, according to a statement on PBOC website late yesterday.

Foreign payment companies will be treated equally as their Chinese counterparts,

the PBOC said.

     LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos, said

Wind Information, a Shanghai-based financial data provider. This resulted in a

net drain of CNY150 billion after the maturity of CNY160 billion reverse repo.

CFETS-ICAP's money-market sentiment index closed at 36 on Wednesday, down from

39 on Tuesday.

     MONEY MARKET RATES: 7-day repo average fell to 2.7553% from 2.8165% on

Wednesday, after the PBOC drained CNY150 billion net through OMO. The overnight

repo average dropped to 2.5291% from Wednesday's 2.5430%.

     YUAN: The yuan gained 0.16% on Thursday from yesterday to close at 6.3212

against the U.S. dollar. The PBOC set the yuan central parity rate at 6.3167

against the dollar, much stronger than Wednesday's 6.3396. It is the biggest

daily gain since Feb 27.  

     BONDS: The yield on benchmark 10-year China Government Bond slid to 3.7475%

from the previous close of 3.7650%, according to Wind Information.

     STOCKS: Shares declined in Shanghai after the PBOC raised 7-day repo rate

by 5 bps. The benchmark Shanghai Composite Index fell 0.5% to 3,263.48. Hong

Kong's Hang Seng Index was down 0.70% to 31,194.29. 

     FROM THE PRESS: China will accelerate market-based debt-to-equity swaps and

allow more non-bank institutions to participate, China Securities Journal

reported citing Wang Zhaoxing, vice chairman of China Banking Regulatory

Commission. State-owned companies have prepared capital for more participation

in the market, the newspaper reported citing Xiao Yaqing, head of the

State-Owned Asset Supervision and Administration Commission. 

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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