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EXCLUSIVE: The People’s Bank of China should take advantage of a window of opportunity to further ease monetary conditions in coordination with fiscal expansion to counter a H1 economic slowdown before a likely rate hike by the U.S. Federal Reserve reduces policy space later in the year, advisors and experts familiar with monetary policy told MNI.
POLICY: The PBOC will use both overall broad and targeted monetary tools to stabilise credit growth and lower lending costs in the process of supporting small and medium-sized businesses and shoring up the economy, officials of the central bank told reporters on Thursday.
LIQUIDITY: The PBOC injected CNY100 billion via seven-day reverse repos with the rate unchanged at 2.2%. This operation has injected net CNY90 billion after offsetting the maturity of CNY10 billion reverse repos, according to Wind Information. The operation aims to maintain liquidity towards year-end, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.4739% from 2.3650% on Wednesday, Wind Information showed. The overnight repo average fell to 1.2674% from the previous 1.2814%.
YUAN: The currency weakened to 6.3793 against the dollar from 6.3714 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.3674, compared with 6.3735 set on Wednesday.
BONDS: The yield on 10-year China Government Bond was last at 2.8100%, down from Wednesday's close of 2.8275%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged up 0.62% to 3,619.19, while the CSI300 index increased 0.78% to 4,921.51. Hang Seng Index gained 0.11% to 23,112.01.
FROM THE PRESS: China should seize the current favorable opportunity to increase counter-cyclical policies before any U.S. rate hike, by accelerating the initiative-taking fiscal policy and titling prudent monetary policy to loosening, the Economic Information Daily reported citing Sheng Songcheng, a former PBOC official. China should take multiple measures to cope with short-term downward pressures, as any long-term structural reforms will be impossible without economic stability, said Sheng, combating ideas about monetary tightening to help prevent real estate and local government debt risks. Investment will be the main driver to boost growth next year as it takes time for consumption and service industries to recover while exports could weaken, Sheng said.
Commercial banks in China are finding it hard to meet the requirement of boosting lending to SMEs, due to a lack of safe assets as SMEs’ anti-risk capabilities are weak amid the economic downturn, the 21st Century Business Herald reported citing credit managers. China’s top banking regulator asked the big five state-owned banks to achieve an annual growth of 30% in new inclusive loans, while inclusive loans increased by 24.6% y/y as of October, 9.7 percentage points higher than the average growth of other loans, the newspaper said. Such “asset shortage” even affects the financial market with the rate of 10-year China Government Bond approaching a new low and the discounting rate of bank bills once falling to close to zero, the newspaper said.
China will promote consumption to underpin the economy, as well as stabilise trade and foreign investment, Shanghai Securities News reported following a Ministry of Commerce meeting outlining work for next year. Efforts should promote the upgrade of urban and rural consumption and meet people’s demands for mid-to-high-end products and services, the newspaper said citing Chen Lifen, research fellow at the Development Research Center of the State Council. It is necessary to strengthen cross-cycle policies to stabilise imports and exports, and attract more foreign investment and expand opening markets, the meeting said.
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