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(Z1) Off Lows, But Remains Weak


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POLICY: Inflation in China is generally moderate, and the People's Bank of China will keep the prudent monetary policy flexible, targeted, reasonable and appropriate, so to support high-quality economic development, said PBOC Governor Yi Gang during a video conference with G20 finance ministers and central bank governors, according to a statement on the PBOC website.

DATA: China's producer price index measuring factory gate prices rose 10.7% y/y in September, accelerating from August's 9.5% gain, hitting the highest level since November 1995 and outshining a forecast of 9.5%, according to the National Bureau of Statistics. September consumer price index eased to 0.7% y/y from 0.8% in August, registering a five-month low, less than the forecast 0.8%.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operations lead to a net drain of CNY90 billion after offsetting the maturity of CNY100 billion reverse repos today, according to Wind Information. The operation aims to keep the liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.1903% from 2.1977% on Wednesday, Wind Information showed. The overnight repo average fell to 2.0923% from the previous 2.1436%.

YUAN: The currency strengthened to 6.4339 against the dollar from 6.4452 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.4414, compared with the 6.4612 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.9975%, up from Wednesday's close of 2.9950%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.10% to 3,558.28, while the CSI300 index decreased 0.54% to 4,913.61. The Hong Kong stock market was closed for a public holiday.

FROM THE PRESS: China should pursue loose monetary policy to counter a slowdown, and the central bank should cut RRRs in due course to enhance banks' lending capacity to new growth engines and weak links of the economy, reported citing Wu Chaoming, chief economist of Chasing Securities.The average forecast for China's Q3 GDP growth is 5.35%, with the expectation of annual GDP forecast revised to 8.15% from 8.72%, as real estate regulations and power cuts will continue to weigh on the economy, Yicai said. Real estate investment and exports, the two main drivers of the recovery from the epidemic, may head downward, while power cuts could affect production and further suppress supply and demand, with the risk of stagflation rising, the newspaper said citing Luo Zhiheng, deputy dean of Yuekai Securities Research Institute.

China's new loans and aggregate financing are likely to rise in Q4, as fiscal spending and the sale of local government special bonds accelerate while reboudning consumption drives credit demand, reported citing analysts. New loans slowed significantly in September due to the contraction of medium and long-term lending to residents and businesses amid cooling housing market as well as rising producer costs, the newspaper said. Analysts are divided on the necessity of an RRR cut in Q4, with some calling for a 0.5 pp cut to stabilize credit growth, while others arguing further easing will dilute the policy goal of stabilizing the macro-leverage ratio and supporting the real economy, the newspaper said.

China has overcome the difficulties of economic recovery more effectively, so it has a powerful foundation to resist U.S. censure and lead international competition, the Global Times said in a commentary. The U.S. and Western countries are dependent on Chinese products in many areas, and it is difficult to implement an alternative strategy, said the newspaper. However, China faces a debt default represented by real estate giant Evergrande Group, a sluggish property market, and a shortage of electricity, which pressured growth, said the newspaper. China should speed up measures to alleviate the power shortage, and the government needs to carry out regulation based on facts and reality, and not hesitate to break through restrictions, the newspaper said.