MNI China Daily Summary: Friday, April 1

EXCLUSIVE: The People’s Bank of China is likely to respond to the double blow to the economy from the most serious Covid outbreak since April 2020 and rising raw material costs with a cut to banks’ reserve requirements and increased liquidity injections in the second quarter, but Federal Reserve tightening makes benchmark rate cuts less possible, policy advisors and experts told MNI.

POLICY: Shanghai has stepped up measures to contain the spread of Covid-19, ordering that those leaving the city must provide a negative antigen test result as of April 2, in addition to meeting the usual 48-our nucleic acid test requirement. Authorities will enforce the new rules on people planning to leave the city at major airports, ports, train stations and highways, the city said on its Weibo account late Thursday.

DATA: Caixin China's manufacturing PMI for March dropped 2.3 points on month to 48.1, below the breakeven 50 level, hitting the lowest since March 2020 amid a wider outbreak of local Covid-19 cases, financial publisher Caixin said. Both the production and new order sub-indices fell to two-year lows, as the outbreaks disrupted the supply chains, Caixin said, adding that overall demand, especially for consumer goods, was relatively weak.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation has led to a net drain of CNY90 billion after offsetting the maturity of CNY100 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) decreased to 1.9607% from the close of 2.2449% on Thursday, Wind Information showed. The overnight repo average fell to 1.6122% from the previous 1.9489%.

YUAN: The currency weakened to 6.3591 against the dollar from 6.3433 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.3509, compared with 6.3482 set on Thursday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8025%, down from 2.8100% of Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.94% to 3,282.72, while the CSI300 rallied 1.27% to 4,276.16. The Hong Kong's Hang Seng Index gained 0.19% to 22,039.55.

FROM THE PRESS: The PBOC is likely to keep liquidity ample this month to meet an expected liquidity gap of about CNY300 billion, the Shanghai Securities News reported citing analysts. The central bank still has the policy space to cut reserve requirement ratios or policy rates in April, the newspaper said. Reducing the rate of the Medium-term Lending Facility is key to stimulating the loan demand of companies and residents, the newspaper said citing analyst Wang Qing at Golden Credit Rating. An interest rate cut this month is more likely as it can more effectively help corporates cut loan costs and prevent a falling real estate market, it said.

China's manufacturing gauge can return to expansion in the next few months after the government stated its strong fiscal policy support, such as accelerated local government bond issuances that support infrastructure investment and help boost industrial production, Yicai.com said citing analysts. However, domestic Covid-19 outbreaks and commodity prices are having a greater-than-expected impact on the economy, putting pressure on growth, it said. Monetary loosening is now more necessary with a growing possibility of an RRR cut, Yicai said.