MNI China Daily Summary: Thursday, April 21

EXCLUSIVE: More expensive commodities and a weaker yuan could push Chinese consumer price inflation over 3% by next year, but for the moment the negative impact on manufacturers’ profits will only add to reasons for the People’s Bank of China (PBOC) to maintain accommodative monetary policy even if it crimps room for additional easing, advisors and analysts told MNI.

POLICY: Consumption in China will continue to recover as the impact of the epidemic gradually eases and policies to boost spending kick in, Gao Feng, spokesman of the Ministry of Commerce said at a briefing Thursday. Local governments should introduce targeted measures to promote consumption, in tandem with epidemic prevention measures, Gao said.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 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 1.7018% from the close of 1.7857% on Wednesday, Wind Information showed. The overnight repo average fell to 1.2891% from the previous 1.3028%.

YUAN: The currency weakened to 6.4500 against the dollar from 6.4153 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 6.4098, compared with 6.3996 set on Wednesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8500%, down from 2.8575% of Wednesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index tumbled 2.26% to 3,079.81, while the CSI300 lost 1.84% to 3,995.83. The Hong Kong's Hang Seng Index fell 1.25% to 20,682.22.

FROM THE PRESS: The benchmark Loan Prime Rate is still likely to be cut by 10 to 15 basis points in May and June to help stabilize the economy, the Shanghai Securities Journal reported citing analysts after the April LPR was left unchanged on Wednesday. The recent cut to reserve requirement ratio as well as the lowering of deposit rate ceiling for smaller banks help to reduce costs of banks, which should prompt them to lower corporate loan interest rates, the newspaper said citing Wang Qing, chief analyst at Golden Credit Rating. Corporate loan interest rates fell by 0.21 percentage points year-on-year to a record low of 4.4% in Q1, the newspaper added.

The yuan is expected to further release depreciation pressure this year as export growth is likely to slow while the Federal Reserve is seen accelerating rate hikes and balance sheet reductions, but the yuan still has ample buffer space given its last low point was around 7.1 against the U.S. dollar, the Securities Times reported citing analysts. There will be no panic about yuan devaluation as its two-way flexibility has been greatly strengthened, and the currency mismatch has also been significantly improved, the newspaper said citing Guan Tao, chief economist at BOC Securities. Guan warned that the yuan may come under pressure again should the Fed tightens more than expected, which could burst asset bubbles and trigger a recession, the newspaper said.

China’s local commercial banks are likely to reduce mortgage rates while the local governments may ease the use of pubic funds, loosen purchase requirements and boost personal mortgages to release housing demand, Shanghai Securities News said citing Lian Zhan, chief economist of Zhixi Investment Research Institute. China’s loan rate will continue to steadily fall, supporting industries and SMEs and self-employed badly hurt by the pandemic, stabilize economic fundamentals, the newspaper said interpreting a central bank policy meeting on April 19. Future loan rate will likely depend on reduced LPR plus differentials, and lower refinancing to deliver to weak economic links. As well, banks’ liability management is now on target, it said. Loan rate will continue to steadily fall, supporting industries and SMEs and the self-employed severely hurt by the pandemic, stabilize economic fundamentals.

China will ensure a stable supply of important agricultural products as well as increasing energy supply in the face of high inflation overseas, the China Securities Journal reported citing the State Council executive meeting on Wednesday. China will expand coal production capacity by 300 million tons this year, promote the clean use of coal and strengthen the building of coal reserves, the meeting said.