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EXCLUSIVE: A People's Bank of China (PBOC) benchmark key for setting
companies' cost of borrowing is likely to be guided lower on Wednesday after
PBOC adjusted an open market rate earlier in the month, government advisors
said. The Loan Prime Rate (LPR) will fall in accordance with Nov. 5's 5 bps cut
in the Medium-Term Lending Facility (MLF), said Chen Daofu, vice-director at the
Financial Research Institute at the State Council's Development Research Centre,
noting that real interest rates are still relatively high.
EXCLUSIVE: China's slowest growth in three decades has divided government
advisors over how to stimulate the economy, amid concerns that rising inflation
cramps the space for additional monetary easing just as the scope for boosting
infrastructure spending is limited by local governments' lack of access to
capital. PBOC may opt to make further small cuts along the lines of early
November's 5-bps reduction in its MLF rate, helping to guide down the LPR which
acts as a reference for corporate bank loans, Xu Qiyuan, director of the
Economic Development Division at the Institute of World Economics and Politics
under the China Academy of Social Sciences, told MNI. More aggressive easing,
such as a further reduction in banks' reserve requirement ratios, might fuel
excessive inflationary expectations, he added.
LIQUIDITY: PBOC injected CNY120 billion by 7-day reverse repos, adding
liquidity for the second day, according to Wind Information. The central
government treasury also deposited CNY50 billion at commercial banks today, the
PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository
institutions (DR007) fell to 2.5747% from 2.7418% on Monday, Wind Information
showed. The overnight repo average decreased to 2.3269% from 2.7015% on Monday.
YUAN: The yuan weakened to 7.0238 against the dollar from 7.0122 on Monday.
PBOC set the dollar-yuan central parity rate lower for a second day at 7.0030,
compared with Monday's 7.0037.
BONDS: The yield on 10-year China Government Bonds was last at 3.1700%,
down from the close of 3.1875% on Monday, according to Wind Information.
STOCKS: The Shanghai Composite Index gained 0.85% to 2,933.99. Shares in
video games, 5G and mobile phones advanced. Hong Kong's Hang Seng Index rallied
1.55% to 27,093.80.
FROM THE PRESS: The PBOC is likely to guide standing lending facility (SLF)
rate lower in the near term, following 5 bps cuts to both MLF and 7-day reverse
repo rates. PBOC is also likely to further cut the MLF rate in the first half of
2020 to further guide LPR lower, the newspaper said citing Bian Quanshui, chief
analyst at Sinolink Securities. Designated banks will update LPR quotations on
the 20th of each month, which serve as a reference rate for new bank loans.
PBOC may be on a cycle of rate cuts after lowering by 5 bps the rate of
7-day reverse repo yesterday and MLF Nov 5, the Shanghai Securities News
reported citing analysts. The fact that liquidity is still tight after the cut
yesterday, however, indicates market caution, the report said.
The PBOC may intend to keep a prudent monetary policy judging by comments
in its Q3 report on the growth of the money supply, the Economic Daily reported.
The market should consider downward pressure on the economy when predicting the
direction of monetary and fiscal policy, the newspaper said citing Xie Yaxuan,
chief economist at China Merchants Securities.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: email@example.com
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