MNI China Daily Summary: Friday, January 20

POLICY: China’s over-five-year loan prime rate is still expected to be reduced later this quarter to support the housing market after key lending reference rates were left unchanged on Friday as confidence in an economic recovery spurs loan demand, economists said.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY62 billion of operations via 7-day reverse repos and CNY319 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operation led to a net injection of CNY326 billion after offsetting the maturity of CNY55 billion reverse repos today, according to Wind Information. The operation aims to keep banking system liquidity stable before Chinese New Year, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.9840% from 2.3543% on Thursday, Wind Information showed. The overnight repo average increased to 1.7001% from the previous 1.5996%.

YUAN: The currency weakened to 6.7740 against the dollar from 6.7738 on Thursday. The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.7702, compared with 6.7674 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.9521%, up from Thursday's close of 2.9305, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.76% to 3,264.81 while the CSI300 index was up 0.61% to 4,181.53. The Hang Seng Index was up 1.82% to 22,044.65.

FROM THE PRESS: Local governments have increased the use of consumption coupons to increase spending during the Spring Festival, according to the Securities Times. Authorities are offering coupons through partnerships with big-tech shopping platforms, and experimenting with issuing the digital RMB, the paper said. Citing experts, the paper believes the vouchers can achieve targeted consumption objectives, with food, accommodation, travel, shopping and entertainment the sectors benefiting the most from the schemes. Zhejiang province expects to issue more than CNY1.6 billion of consumer coupons in total, the paper said.

Several local governments in tier two cities such as Jiujiang, Taiyuan, and Tangshan have decreased the lower limit on first time buyer mortgage interest rates to as low as 3.8%, according to Securities Daily. The move follows the recent measure taken by the People’s Bank of China (PBOC) to grant local authorities the power to set their own lower limit on mortgage rates if house prices have fallen year-on-year for three consecutive months. The paper believes more cities will lower their rates in 2023 to support demand and boost confidence. An LPR cut by the central bank is also a possibility, the paper said.

Foreign investment in A-shares is expected to increase significantly in 2023, as investors seek to capture opportunities from China’s recovery and long term fundamentals, according to China Securities News. The paper said the two-way opening of onshore capital markets, the strong upside potential of A-shares, and government growth policies are attracting northbound flows this year. Citing experts, the paper said the yuan could hit 6.5 against the U.S. dollar by year-end, overall returns on the CSI 300 Index could reach 16%, and GDP growth would be above 5%.

Due to China's Spring Festival holiday, the summary won't be published again until January 30.