MNI China Press Digest June 28: Policy Rate, PBOC, Profits

Highlights from Chinese press reports on Friday:

• The People’s Bank of China may gradually downplay the Medium-term Lending Facility as its policy interest rate, and instead use the 7-day reverse repo rate to smooth out the transmission mechanism, the Shanghai Securities News reported citing analysts. The MLF often deviated from market trends for the same term, which can confuse participants, whilst short-term rates like DR007 have fluctuated around the 7-day reverse repo rate this year, said Lu Zhengwei, chief economist of Industrial Bank. Any changes would likely lead to reforms of Loan Prime Rates which are anchored with the MLF rate, the newspaper added.
• The PBOC policy aims to maintain reasonable balance between growth, risk prevention, and economic structural adjustments, in order to avoid systemic financial risks, according to an article by PBOC’s Financial Stability Bureau. Authorities will improve market-oriented risk disposal mechanisms, strengthen regulatory coordination and increase risk monitoring and early warning systems, the article said.
• Chinese firms face continued weakness in domestic demand, as May’s data showed industrial profit growth decelerating to a 3.4% y/y increase in the first five months, down from 4.3% in the first four months, said Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank. Wu Chaoming, deputy director of Caixin Research Institute, said stronger fiscal policy in H2 may support demand and corporate profits, but real-estate uncertainty meant earnings would be volatile. (Source: Securities Daily)