MNI China Daily Summary: Tuesday, May 25

POLICY: China's government will stabilize the supply and prices of commodities and any hoarding will be targeted, Chinese Premier Li Keqing said during a trip to Zhejiang on Monday. The government will guide market expectations and support enterprises in coping with rising costs, Li said state news agency Xinhua reported as the comments were made public Tuesday. Beijing will also strive to prevent higher commodity prices from transforming into rising consumer good prices, Li added.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Tuesday. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing 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) rose to 2.2579% from 2.1348% on Monday, Wind Information showed. The overnight repo average increased to 2.1672% from the previous 1.1718%.

YUAN: The currency strengthened to 6.4078 against the dollar from 6.4293 on Monday. The PBOC set the dollar-yuan central parity rate lower at 6.4283, compared with the 6.4408 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 3.06075%, down from Monday's close of 3.0700%, according to Wind Information.

STOCKS: The Shanghai Composite Index jumped 2.40% to 3,581.34 while the CSI300 index rose 3.16% to 5,318.48. Hang Seng Index increased 1.75% to 28,910.86.

FROM THE PRESS: China policymakers see no need to strengthen the yuan to tame rising imported inflation, the 21st Century Business Herald said citing an unnamed domestic economist, who studied remarks over the weekend by the PBOC Deputy Governor Liu Guoqiang aiming to discourage a one-way bet on the Chinese currency. The current commodity price gains may only be short-term, the U.S. Federal Reserve is likely to tighten liquidity, and commodity supplies can increase, the newspaper said. The yuan may not continue to appreciate significantly as other countries catch up to China in terms of restoring their manufacturing, the newspaper said.

China should boost domestic supplies of commodities, better coordinate with demand, and strengthen price controls to reduce the costs for producers and exporters, the Economic Information Daily said in a commentary. Global commodity prices have drawn increasing concerns by the central government, said the newspaper owned by the Xinhua News Agency. The rallies and their impacts on PPI may still stay for some time, it said. While rising prices may limit monetary policy room, for now, the central bank isn't likely to tighten, the daily said.

The interest rates on 10-year and longer-term Chinese government bonds will likely drop below 3% in the near term and stay slightly over 3% in H2, said China International Capital Corp. The biggest uncertainty facing CGBs is how much local government bonds China will allow to be issued this year, and it's quite possible that financial authorities decide against using the full CNY7.22 trillion quotas approved in March, CICC said.