MNI China Daily Summary: Friday, June 24

POLICY: A liquidity feast in China’s interbank market is likely unsustainable into the second half of the year if the central bank acts to curb money supply based on economic and credit indicators that are now sending a warning signal, market analysts said, as they cautioned investors to reduce leverage in short-duration debt in their portfolios.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY60 billion via 7-day reverse repos with the rate unchanged at 2.1%. This led to a net injection of CNY50 billion after offsetting the maturing CNY10 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity stable at the end of mid-year, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.7978% from the 1.6135% on Thursday, Wind Information showed. The overnight repo average fell to 1.4293% from the previous 1.4335%.

YUAN: The currency strengthened to 6.6936 against the dollar from 6.7080 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.7000, compared with 6.7079 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 2.8450%, up from Thursday's close of 2.8275%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.89% to 3,349.75, while the CSI300 index gained 1.17% to 4,394.77. Hang Seng Index rallied 2.09% to 21,719.06.

FROM THE PRESS: The PBOC will control the number and scale of structural monetary policy tools at the desired level, and form solid cooperation with aggregate policy tools, said PBOC Vice Governor Chen Yulu, in response to market concern that excessive use of structural tools would weaken aggregate tools, according to a statement on the PBOC WeChat account. Structural tools can link the central bank's funds with the credit issuance of financial institutions to support specific fields and industries, which effectively optimises credit structures, said Chen. Structural tools also have the function of basic money supply, which will help keep liquidity reasonably sufficient and support the steady growth of credit, Chen added.

China’s monetary policy should be alert to the lagging effect and subprime mortgage risks while focusing on stabilising prices and the property market, said the 21st Century Business Herald in an editorial. A 1% drop in nominal short-term interest rates would lead to a 5% increase in housing prices, taking three years to materialise, the newspaper said citing a study by Bank for International Settlements. But the Chinese property market with already high prices, is hard to take any further price growth, the newspaper noted. Developed countries in rate hike cycles to tame high inflation, face a growing concern of housing bubbles bursting, as both the home price-to-rent and home price-to-income ratios in 19 OECD countries are higher than those before the 2008 financial crisis, the newspaper said.

At least nine cities near Shanghai in Yangtze Delta have stopped or suspended regular nucleic acid testing in the past two weeks, the 21st Century Business Herald reported. Shanghai’s neighboring province, Jiangsu, has completely lifted travel restrictions for people and vehicles coming from low-risk areas, with the expressway exits no longer being inspected for 48-hour nucleic acid test certificates, the newspaper said. Beijing and Shenzhen still require such certificates to enter the city, while some other cities only require the green health code and normal temperature, the newspaper added.