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POLICY: China will continue to organize the release of state reserves of copper, aluminum and zinc to further ease cost pressures, and commodity prices are expected to gradually return to a reasonable range, said Wan Jinsong, director of the Price Department at the National Development and Reform Commission at a briefing on Monday.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. 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) fell to 2.1468% from 2.1762% on Friday, Wind Information showed. The overnight repo average increased to 2.1117% from the previous 2.0799%.
YUAN: The currency weakened to 6.4835 against the dollar from 6.4678 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.4700, compared with the 6.4705 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.9800%, up from 2.9780% on Friday, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 0.01% to 3,539.12 while the CSI300 index rallied 0.37% to 5,113.49. Hang Seng Index lost 1.84% to 27,489.78.
FROM THE PRESS: The PBOC may cut its one-year Loan Prime Rate, the central bank's guidance for lending, by 5 bp on July 20 when the monthly-set guidance is released, Yicai.com reported citing industry analysts. The cut became more likely after the central bank had lowered the required reserve ratios by 0.5 pp for all lenders on July 9, unlocking CNY1 trillion, Yicai said. The PBOC may further cut the RRR by 0.5 pp to help renew as much as CNY2.45 trillion maturing MLF, Yicai said citing economists. The central bank's expected move may come on the rising expectation that the U.S. Federal Reserve may be forced to begin scaling back easing to cool inflation, Yicai said. China's businesses need a financial boost given the lack of fiscal stimulus in H1, including the slower-than-usual issuances of local government debt, the newspaper said citing Lian Ping, the chief economist at Zhixin Investment.
China should consider selling more central government debt to boost expansionary fiscal policies given the uncertainties including the recurring pandemic and risks of the U.S. Federal Reserve raising rates, Yu Yongding, a former member of the PBOC's monetary policy committee, said in an interview with the Economic Observer. Monetary policies should play a supporting role to help drive down the government bond yield curve and implement the fiscal stimulus, and the PBOC should even consider QE if necessary, Yu told the newspaper. China should also tolerate relatively high inflation so that the higher commodity costs seen in H2 can be passed downstream to consumer goods, thus help boost business profits and promote recovery, Yu said.
China may increase fiscal expansion in Q4 by accelerating local government bond issuances to support growth next year, given weakening leading indicators including PMI's new export order index, property sales and investment have signaled certain growth pressure, the Securities Times reported citing analysts. Targeted measures to stabilize the operation of SMEs and boosting employment remain the top priority in H2 as growth normalizes, the newspaper said. China's Q2 GDP grew 7.9% y/y, averaging 5.5% over the last two years, lower than the 6% growth in Q2 2019, the newspaper added.