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     TOP NEWS: The People's Bank of China (PBOC) may cut required reserve ratio
(RRR) for banks to ease expected tight liquidity in June and July, the official
China Securities Journal said Tuesday in a front-page commentary. "It's expected
that the PBOC would increase OMO injection and money supply for banks to
smoothly go through inter-quarterly period" when banks face various regulatory
examinations such as macro-prudential assessment and liquidity coverage ratio
requirement at the end of every quarter, said the newspaper. The option of an
RRR cut in exchange for other requirements by the PBOC, such as one announced in
April, when banks were required to pay back the medium-term lending facility to
the central bank, could be considered, the newspaper said.
     TOP NEWS: Financial regulators need to control risks during China's further
opening up, Yi Gang, governor of the PBOC said Tuesday, according to China
Securities Journal. Financial institutions should receive licenses from the
authorities before they start their businesses, Yi stressed. Yi iterated further
opening of China's financial sector needs to coordinate well with its reform of
foreign exchange rate formation system and capital account convertibility, and
its advancement should be steady and gradual, Yi was cited as saying by the
     LIQUIDITY: The PBOC injected CNY100 billion and CNY80 billion in 7-day and
28-day reverse repos on Tuesday, with rates unchanged at 2.55% and 2.85%,
respectively, to counter the impact of final settlement and payment of
enterprise income taxes, according to a statement on its website. It resulted in
CNY50 billion net injection after CNY130 billion matured today. CFETS-ICAP's
money-market sentiment index closed at 57 on Monday, up from 42 on Friday.
     MONEY MARKET RATES: 7-day repo average rose to 2.8846% from 2.7762% Monday,
after the PBOC injected CNY50 billion via OMO. The overnight repo average
decreased to 2.7562% from Monday's 2.5288%.
     YUAN: The yuan slid to 6.4134 against the U.S. dollar from Monday's closing
of 6.3938. Earlier today, the PBOC set the yuan central parity rate weaker at
6.4021 on Tuesday, compared with Monday's 6.3962. The central bank has set the
fixing weaker for four trading days in a row, adding the total decline to almost
     BONDS: The yield on benchmark 10-year China Government Bond was last at
3.6150%, down from the previous close of 3.6200, according to Wind Information.
     STOCKS: Shares declined in Shanghai, led by medicine companies after
cooling investor sentiment, with Nanjing Hicin Pharmaceutical Co. down by the
daily-limit 10%. The benchmark Shanghai Composite Index closed 0.47% lower at
3,120.47. Hong Kong's Hang Seng Index lost 0.85% to 30,531.35.
     FROM THE PRESS: China's banking regulators may soon publish rules on banks'
structural deposit products, a type of WMP with interest rate linked and
affected by prices of a financial derivative, Securities Daily reported. Banks
are increasingly using structural deposit products to replace previous WMPs with
promised interest rates for consumers after new WMP rules were issued, the daily
said. More regulations are needed to curb such illegalities, the newspaper said
citing analysts including Wu Wen, senior researcher at the financial research
center of Bank of Communications.
     The China Banking and Insurance Regulatory Commission is speeding up
process of creating specific rules for banks' WMP business, China Securities
Journal said citing Li Wenhong, director of the regulator's innovation
department. The rules would follow main regulations of the new WMP rules issued
at the end of April, but specify requirements for banks' WMPs, the newspaper
said citing Li. Risk controls of financial institutions should be enhanced,
banks' bad loans are still of concern and may rebound, and cross-market risks
still exist, Li was reported as saying by the newspaper.
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]

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