MNI China Daily Summary: Friday, October 18
EXCLUSIVE: China's Loan Prime Rate will be reduced by 20-25 basis points next Monday following the People’s Bank of China’s 20bp cut to its key 7-day reverse repo rate last month, which will help guide down mortgage rates and reduce borrowing costs to shore up domestic demand. Authorities will set one-year LPR at either 3.10% or 3.15% from 3.35%, while the over five-year maturity will fall to 3.60% or 3.65% from 3.85%.
POLICY: China is facing challenges from both real estate and capital markets, and the PBOC could cut reserve requirement ratio by a further 25 to 50bps before the year-end depending on market liquidity conditions, Governor Pan Gongsheng told a forum.
DATA: China's economy grew by 4.6% y/y in Q3, 10 basis points lower than the market estimate, and slowing from Q2's 4.7%, data released by the National Bureau of Statistics (NBS) showed. Retail sales rose 3.2% y/y in September to hit a four-month high, accelerating from August's 2.1% gain and beating the 2.5% forecast. Industrial production increased 5.4% y/y in September to mark the highest reading in four months, rebounding from August's 4.5% growth and outperforming the expected 4.6%. Fixed-asset investment registered at 3.4% y/y increase in the first nine months, unchanged from the reading over the Jan-Aug period and higher than the 3.3% consensus.
POLICY: Authorities are incresaingly confident China can reach the government's 5% GDP growth target in 2024, with September's improvements likely to continue into Q4, said Sheng Laiyun, deputy director of the NBS.
POLICY: The People’s Bank of China (PBOC) launched its one-year CNY300 billion relending facility targeting stock buy-backs on Friday with an annual interest rate of 1.75%, according to a statement on its website. The facility, which the Bank can extend if necessary, will incentivise lenders to provide loans to eligible listed companies and major shareholders to support stock repurchases and increases holdings.
POLICY: China will allow qualified insurance institutions to establish new private equity securities investment funds, increasing efforts to stabilise the stock market and address lender risks, including narrowing net interest margins and interest-spread losses, aid Li Yunze, head at National Financial Regulatory Administration, in a forum.
LIQUIDITY: The PBOC conducted CNY108.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY14.2 billion after offsetting the maturity of CNY94.2 billion today, according to Wind Information.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6065% from 1.6093% on Thursday, Wind Information showed. The overnight repo average decreased to 1.4037% from 1.4278%.
YUAN: The currency strengthened to 7.1035 against the dollar from 7.1233 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 7.1274 on Friday, compared with 7.1220 set on Thursday. The fixing was estimated at 7.1266 by Bloomberg survey today.
BONDS: The yield on 10-year China Government Bonds was last at 2.1110%, up from Thursday's close of 2.1030%, according to chinamoney.com.cn.
STOCKS: The Shanghai Composite Index was up 2.91% to 3,261.56, while the CSI300 index rallied 3.62% to 3,925.23. The Hang Seng Index rose 3.61% at 20,804.11.
FROM THE PRESS: The October Loan Prime Rates, set to be released on Monday, will most likely be lowered by 20 basis points following the People’s Bank of China’s 20bp cut to the 7-day reverse repo rate last month, Securities Daily reported citing analysts. The LPR will likely remain stable over November and December as authorities monitor policy impacts, while the historic low of banks’ net interest margin will constraint downward movement, the daily said, citing Wang Qing, chief macro analyst at Golden Credit Rating. The one-year and five-year LPRs have been reduced by 10bp and 35bp so far this year to 3.35% and 3.85%.
The Housing Ministry’s latest plan to renovate one million urban-village houses by offering resettlement subsidies for residents is expected to drive home sales of about 100 million square meters, Xinhua Finance reported citing estimates by China Real Estate Information Corp. If the plan is implemented within one year, it will likely drive a 14% increase in annual home sales by area, the newspaper said citing analysts.
Authorities should step up efforts to implement existing policies and launch additional measures, push for sustained economic rebound and strive to complete the annual targets, Xinhua News Agency reported citing Vice Premier Ding Xuexiang. China must increase counter-cyclical adjustments and fully utilise local government special bonds to give full play to the driving role of government investment, while improving the business environment to expand private investment, Ding said.