MNI China Daily Summary: Friday, June 17

POLICY: China’s key reference lending rate is expected to remain unchanged this coming Monday as the People’s Bank of China (PBOC) refrains from further divergence from U.S. monetary policy that could encourage more capital outflows and pressure the yuan, market analysts said. The June Loan Prime Rate (LPR), to be released by the PBOC on June 20 based on quotes from 18 banks, is likely to remain at 3.7% over one year rate and 4.45% for five years and above.

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) increased to 1.6584% from the 1.6148% on Thursday, Wind Information showed. The overnight repo average rose to 1.4154% from the previous 1.4106%.

YUAN: The currency strengthened to 6.7010 against the dollar from 6.7162 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.6923, compared with 6.7099 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 2.8125%, down from Thursday's close of 2.8150%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.96% to 3,316.79, while the CSI300 index gained 1.39% to 4,309.04. Hang Seng Index increased 1.10% to 21,075.00.

FROM THE PRESS: China’s real estate market is still hovering at the bottom despite over 200 cities having loosened regulations by mid-June, as home prices nationwide are still slowly declining, Caixin reported. Second-hand home prices in 70 key cities decreased by 0.4% m/m, or 2.2% y/y in May, Caixin cited data by Shanghai E-House Real Estate Research Institute. New housing declined by 0.2% m/m, or 0.8% y/y, said Caixin. The current relaxations aim at fine-tuning the qualifications of home buyers, and first-tier cities have not changed policies markedly, Caixin said citing Zhang Dawei, chief analyst of Centaline Property.

China should use the next six months to intensify fiscal policy and pay more attention to price tools of monetary policy to stabilise economic growth, in order to prepare for the arrival of global stagflation, according to a working paper published by researchers at China Finance 40 Forum. China should maintain the flexibility of the yuan while closely monitoring capital flow anomalies, the paper said. Also, China should participate more in multilateral debt restructuring mechanisms, as major central banks tighten policy. Along with the sharp rise in global energy and grain prices, it is very likely to trigger debt crises in some emerging markets and developing countries, the paper said.