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POLICY: China’s Loan Prime Rate is expected to be cut over coming months after banks moved to protect net interest margins by lowering deposit rates, but analysts said the LPR should be kept steady on Tuesday in line with the People's Bank of China’s decision to leave its medium-term lending facility rate unchanged on Sept 15.
LIQUIDITY: The PBOC injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.00%, while it also injected CNY10 billion via 14-day reverse repos with the rate lowered by 10 bps to 2.15%. The operation led to a net injection of CNY12 billion as there were no reverse repos maturing today, according to Wind Information. The operation aims to keep liquidity stable at quarter-end, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.6730% from 1.6097% on Friday, Wind Information showed. The overnight repo average rose to 1.4044% from the previous 1.2955%.
YUAN: The currency weakened to 7.0179 against the dollar from 7.0166 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.9396, compared with 6.9305 set on Tuesday.
BONDS: The yield on the 10-year China Government Bond was last at 2.6720%, up from Friday's close of 2.6700%, according to Wind Information.
STOCKS: The Shanghai Composite Index fell 0.35% to 3,115.60 while the CSI300 index edged down 0.12% to 3,928.00. The Hang Seng Index lost 1.04% to 18,565.97.
FROM THE PRESS: The PBOC will monitor the yuan's trend, strengthen expectations management and curb speculation to keep the currency basically stable with two-way fluctuations rather than a “one-sided market”, CCTV News reported citing an unnamed source close to the central bank. The currency has strong support and a solid foundation for maintaining stability, the source was cited as saying. The CFETS yuan index, which measures the yuan's strength relative to a basket of currencies, is close to level seen in late 2021, the source added.
China should prioritize stabilizing growth rather than be concerned about a rapid rise in the macro leverage ratio (total debt/GDP) given the threat of a balance sheet recession, The Paper reported citing Zhang Xiaojing, director of the Chinese Academy of Social Sciences' Institute of Finance. Debt growth in the private sector is almost near record lows, while the total debt growth rate of the real economy has slowed to about 10% from past growth of 30-35%. Household sector debt growth has slowed to below 10% from a high of 50-60% in 2009, according to Zhang. The central government has a relatively low debt ratio and can issue more bonds, said Zhang.
China’s A-share market may rebound as the yuan weakens, the Chinese economy recovers and there is more clarity on geopolitical risks, the Securities Times reported citing analysts. The significant rebound in retail sales, coupled with a slowing decline in home sales, are positive signs at a time when policy stimulus is expected to increase, the newspaper said. The stock market may remain weak in the second half of September, but investors could enter the market in late October on clearer policy expectations, the newspaper said citing analysts from CITIC Securities.
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