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MNI (London)

EXCLUSIVE: A tilt toward easier policy by the People's Bank of China is underway as slower growth in a key measure of money supply shows a gloomy domestic economic outlook as a side effect of strict controls on the property market, advisors and experts told MNI.

LIQUIDITY: Liquidity conditions across China's interbank market were little changed through November, as efforts by the PBOC to 'stabilize' the markets soothed any concerns for traders, the latest MNI Liquidity Conditions Index shows. The Liquidity Condition Index rose to 38.9 in November from previous 35.7, with 85.2% of the traders reporting similar or improved conditions.

LIQUIDITY: The PBOC injected CNY100 billion via 7-day reverse repos with the rates unchanged at 2.2%. The operation has led to a net injection of CNY50 billion after offsetting the maturity of CNY50 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.2374% from the close of 2.1573% on Tuesday, Wind Information showed. The overnight repo average decreased to 1.7800% from the previous 2.1520%.

YUAN: The currency weakened to 6.3877 against the dollar from 6.3845 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.3903, compared with 6.3929 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.9025%, down from Thursday's close of 2.9275%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.10% at 3,592.70, while the CSI300 index rose 0.07% to 4,916.66. Hang Seng Index gained 0.14% to 24,685.50.

FROM THE PRESS: China's trade surplus and foreign capital inflows are supporting the yuan despite the rising U.S. dollar index, wrote Guan Tao, chief global economist of BoC International and a former forex official in a commentary published by the Economic Daily. The China-U.S. interest spread continues to attract foreign capital with the inflows under Bond Connect and Stock Connect amounting to CNY580.6 billion in Jan-Oct, a rise of 40% y/y, said Guan. The trade surplus this year is set to break a record as it already rose 36.6% y/y to USD510.63 billion in the first ten months in favour of China, said Guan. Guan noted that a considerable part of the trade surplus has turned into corporate FX deposit holdings, and financial institutions should help them invest with FX deposits, so to avoid the risk of yuan overshooting due to concentrated FX settlement at year-end, the newspaper said.

Expectations are growing that China will ease policy, including a reserve requirement ratio cut in Q4, reported. Policymakers have been fine-tuning policy to prevent a further economic slowdown since October and Q4 will be the window period for a 50-basis point RRR cut, the newspaper said citing Ding Shuang, Standard Chartered Bank's chief Greater China & North Asia economist. Lu Ting, chief economist with Nomura China also expects monetary easing and fiscal stimulus will soon increase, with rising possibility of RRR cut in the next few months, as policymakers focused on stabilising growth and employment at a recent meeting. But major measures to control debt-raising by developers won't be relaxed and the central bank may take certain measures if the yuan continues to strengthen, the newspaper said citing Lu.

China's PPI will likely ease in November from the over 26-year high of 13.5% in October as domestic coal prices lead a decline in industrial product prices, the China Securities Journal reported citing Wang Qing, chief analyst at Golden Credit Rating. The prices of domestic steel, aluminum, glass and methanol have fallen significantly, and the rising pressure of some raw materials prices has been largely eased, the newspaper said. Globally, the prices of most commodities, except for energy products, will continue to fall in Q4 and Q1 next year with the supply gradually recovering, and probably register negative year-on-year growth in Q2 on high comparison bases, which may sharply drive down factory-gate prices globally, the newspaper said citing Zhao Gongzheng, director of the International Division of the Price Monitoring Center, NDRC.

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