MNI China Daily Summary: Friday, July 21

EXCLUSIVE: The People’s Bank of China (PBOC) is likely to guide lenders to lower mortgage rates for existing customers to boost the housing market and consumption, while the five-year loan prime rate could be reduced to shore up the property market, economists told MNI.

POLICY: China will continue to open its bond market to foreigners, according to Wang Chunying, spokesperson at the State Administration of Foreign Exchange (SAFE). Answering a question from MNI, Wang said overseas investors will increase holdings of yuan assets in H2 as they seek diversified and stable investments. CNY assets will further attract Investors as China prioritises an independent monetary policy and maintains a large liquid bond market, factors other emerging markets can not provide.

LIQUIDITY: The PBOC conducted CNY13 billion via 7-day reverse repos with the rates at 1.90%. The operation has led to a net drain of CNY7 billion after offsetting the maturity of CNY20 billion reverse repo today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8116% from 1.8201%, Wind Information showed. The overnight repo average fell to 1.5233% from the previous 1.5543%.

YUAN: The currency strengthened to 7.1790 against the dollar from 7.1811 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 7.1456, compared with 7.1466 set on Thursday. The fixing was estimated at 7.1908 by BBG survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6750%, down from 2.6850% at Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.06% to 3,167.75 while the CSI300 index fell 0.05% to 3,821.91. The Hang Seng Index was up 0.78% to 19,075.26.

FROM THE PRESS: The PBOC move on Thursday to raise a parameter on cross-border corporate financing under its macro-prudential assessments to 1.5 from 1.25 will allow companies to borrow more overseas and attract capital inflows to offset the depreciation pressure on the yuan. The move will also send a strong signal to ensure the stability of yuan at a time when the U.S. Federal Reserve could hike rates further and make speculation too expensive. (Source: 21st Century Business Herald)

The PBOC will likely cut the reserve requirement ratio in Q3 to support credit expansion and encourage growth, said Feng Lin, senior analyst at Golden Credit Rating. If the PBOC implements the RRR cut, it may keep the medium-term lending facility rate unchanged while lowering the quotation of the Loan Prime Rate, especially for loans with maturities above five years, in order to drive down the rate of mortgages, said Feng. (Source: Securities Daily)

China will implement financial support measures to boost the private sector, according to Xu Xiaolan, vice minister at the Ministry of Industry and Information Technology. Speaking at a recent press conference, Xu said China attaches great importance to the development of SMEs and will guide the finance industry to increase credit and loans to the sector. The government can use the National Small and Medium Enterprises Development Fund to focus investment on national strategies. The Ministry of Industry and Information Technology will continue working with other departments to expand specialised SME listings on regional equity markets including Beijing and Zhejiang. (Source: State Council Website)