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TOP NEWS: The People’s Bank of China (PBOC) hiked the risk reserve requirement ratio on foreign exchange forward sales to curb the sharp drop in the yuan, which has fallen to its lowest level against the U.S. dollar since May 2020. The central bank will impose a 20% risk RRR on banks selling forex in the forwards market, effective on Sep 28, in a bid to “stabilize expectations in the forex market and enhance macro prudential management”, according to the PBOC’s website.
POLICY: China should promote the opening up of its financial industry by accelerating innovation in foreign exchange, securities and commodity futures markets to provide diversified trading services and risk hedging tools, said Lou Jiwei, former finance minister at the Global Asset Management Forum in Beijing on Saturday.
LIQUIDITY: The PBOC injected CNY42 billion via 7-day reverse repos and CNY93 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operations led to a net injection of CNY133 billion after offsetting the maturity of CNY2 billion reverse repos 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 1.8179% from 1.5554% on Friday, Wind Information showed. The overnight repo average fell to 1.4221% from the previous 1.4566%.
YUAN: The currency weakened to 7.1464 against the dollar from 7.1104 on Friday. The PBOC set the dollar-yuan central parity rate higher for a seventh trading day at 7.0298, compared with 6.9920 set on Friday, marking the weakest fixing since July 7, 2020.
BONDS: The yield on the 10-year China Government Bond was last at 2.7225%, up from Friday's close of 2.6975%, according to Wind Information.
STOCKS: The Shanghai Composite Index fell 1.20% to 3,051.23 while the CSI300 index edged down 0.50% to 3,836.68. The Hang Seng Index lost 0.44% to 17,855.14.
FROM THE PRESS: The yuan has surpassed the Japanese yen to become the fourth most used payment currency in the world, with its share of international payments rising to a record high of 3.2% in January 2022, the Shanghai Securities News reported citing the central bank’s RMB Internationalization Report 2022. The central bank will expand the use of the yuan in foreign trade and investment in the Pilot Free Trade Zone, the Guangdong-Hong Kong-Macao Greater Bay Area and the Shanghai International Financial Center, and promote the two-way opening of financial markets to improve the liquidity of yuan assets, the report said. It will also promote bilateral currency swaps and settlement cooperation between central banks, and support the healthy development of the offshore yuan market, according to the report.
The market expects the PBOC to ease policy further over coming months, the Securities Times reported citing a survey of 76 industry insiders. The survey showed 61.8% of the respondents believe the central bank will introduce more structural monetary policy tools, with 52.6% expecting the PBOC to cut policy interest rates such as the rate of Medium-Term Lending Facility (MLF). The survey showed around 46% of respondents believe the PBOC may also lower the reserve requirement ratio. Around 38% of respondents expect the policy rate will remain unchanged, with the benchmark Loan Prime Rate continuing to decline.
China Construction Bank will set up a rental housing fund worth CNY30 billion that will transform real estate developers' unsold housing into long-term, affordable rental housing, Caixin reported. The fund, which has been approved by regulators, will target a period of 10 years and a continuation will be assessed once the term expires, Caixin said. The planned fund is part of the effort to bolster the housing market following the provision of special loans via policy banks to ensure the delivery of unfinished housing projects, the newspaper said.
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