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LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.20% on Monday. 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 2.1464% from 2.0857% on Friday, Wind Information showed. The overnight repo average increased to 2.1666% from the previous 2.0499%.
YUAN: The currency strengthened to 6.4902 against the dollar from 6.5000 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.4969, compared with the 6.4984 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.8625%, up from 2.8475% on Friday, according to Wind Information.
STOCKS: The Shanghai Composite Index rallied 1.45% to 3,477.13 while the CSI300 index gained 1.40% to 4,835.88. Hang Seng Index rose 1.05% to 25,109.59.
FROM THE PRESS: The costs of business lending in China's economy have further room to fall despite the PBOC kept the benchmark Loan Prime Rate unchanged for the 16th month on Aug. 20, the Economic Information Daily, owned by Xinhua News Agency, said in a report citing market participants. The rates on DR007, 10y CGB and 1y Interbank Deposit have all declined following the July RRR cut by the PBOC, so the Q3 corporate lending rates are also likely to drop as policies pushing for lower borrowing costs take effect, the newspaper said citing analyst Wang Qing of Golden Credit Ratings. The next-stage policies are likely to further fiscal policy measures and ensure ample liquidity on the basis of the so-called cross-cycle adjustment, the newspaper said. In an effort to stress structural reform and more sustainable measures, China has promoted the new expression in place of the previous countercyclical adjustment, seen as a more short-term boost.
China should focus on stabilizing the job market as a key to its cross-cycle macro policies and boosting domestic demand, wrote Guan Tao, the global chief economist of Bank of China International and a former forex official, on Yicai.com. Unemployment pressure remains high with the number of new urban jobs in the first seven months still 520,000 lower than the average for the same period in 2018 and 2019, Guan said. The youth unemployment rate will rise significantly with the arrival of the graduation season, while the tougher regulations on the education industry will lead to significant job reduction in the short term, Guan added. The two-year average rates of growth of disposable income and consumption of urban residents in the first seven months were 1.2 and 3.8 percentage points lower than that of the economic growth, according to Guan.
At least five Chinese provinces have reserved some of their special bond quotas for issuance in December so that the proceedings can support next year's growth, seen as under more pressure to reach 5.5%, the potential growth expected in a normal Chinese economy, the China Securities Journal reported citing analysts. There could be more than CNY1 trillion of special bonds to be issued in Q4, with about CNY700 billion in December, the newspaper said citing Zhou Yue, chief fixed-income analyst of Zhongtai Securities. The Ministry of Finance may frontload some of 2022's special bond quotas by the end of this year to ensure the strength of investment is sustained through Q2 2022, the newspaper said citing Gao Ruidong, chief analyst with Everbright Securities.