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MNI China Press Digest Sep 15: Deposit Rates, Loans, FX Reserves

MNI summarises the key stories from the Chinese press.

True

The following lists highlights from Chinese press reports on Thursday:

  • Several Chinese major state-owned banks have lowered their personal deposit interest rates since September 15, following cuts in the benchmark Loan Prime Rates in August, the Securities Times reported citing unnamed sources. The interest rates on three-year term deposits and large-denomination certificates of deposit were lowered by 15 bps. Major banks last lowered their deposit interest rates in late April, after the central bank established a market-based mechanism for deposit interest rates which refers to the 10-year treasury bond yield and 1-year LPR.
  • China will promote equipment upgrades in the manufacturing and social services sectors to expand demand, CCTV News reported following the State Council executive meeting chaired by Premier Li. The government will support banks to provide medium and long-term loans with an interest rate of no higher than 3.2% to manufacturers and social services SMEs to upgrade equipment in Q4. The People’s Bank of China will use a CNY200 billion special relending facility to support the policy, while the central government will offer a 2.5% interest rate discount. In Q4, the actual loan cost for upgrading equipment should be no higher than 0.7%, CCTV said.
  • China needs to ensure it doesn't increase FX reserves to levels greatly more than needed, as increased reserves affect the independence of monetary policy and holding costs increase with diminishing marginal effect, wrote Guan Tao, a former official at the State Administration of Foreign Exchange in a blog post. The blog post was in response to recent market discussions of whether China has sufficient reserves. Increased yuan flexibility, a larger basic surplus, more private sector foreign exchange holdings, the central bank’s macro-prudential management, and FX policy adjustments constitute the "five layers of protection" to maintain the stability of China's FX market, which will reduce dependence on FX reserves, wrote Guan.
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The following lists highlights from Chinese press reports on Thursday:

  • Several Chinese major state-owned banks have lowered their personal deposit interest rates since September 15, following cuts in the benchmark Loan Prime Rates in August, the Securities Times reported citing unnamed sources. The interest rates on three-year term deposits and large-denomination certificates of deposit were lowered by 15 bps. Major banks last lowered their deposit interest rates in late April, after the central bank established a market-based mechanism for deposit interest rates which refers to the 10-year treasury bond yield and 1-year LPR.
  • China will promote equipment upgrades in the manufacturing and social services sectors to expand demand, CCTV News reported following the State Council executive meeting chaired by Premier Li. The government will support banks to provide medium and long-term loans with an interest rate of no higher than 3.2% to manufacturers and social services SMEs to upgrade equipment in Q4. The People’s Bank of China will use a CNY200 billion special relending facility to support the policy, while the central government will offer a 2.5% interest rate discount. In Q4, the actual loan cost for upgrading equipment should be no higher than 0.7%, CCTV said.
  • China needs to ensure it doesn't increase FX reserves to levels greatly more than needed, as increased reserves affect the independence of monetary policy and holding costs increase with diminishing marginal effect, wrote Guan Tao, a former official at the State Administration of Foreign Exchange in a blog post. The blog post was in response to recent market discussions of whether China has sufficient reserves. Increased yuan flexibility, a larger basic surplus, more private sector foreign exchange holdings, the central bank’s macro-prudential management, and FX policy adjustments constitute the "five layers of protection" to maintain the stability of China's FX market, which will reduce dependence on FX reserves, wrote Guan.