MNI China Daily Summary: Monday, February 20

EXCLUSIVE: China’s reference lending rates are expected to remain steady over coming months as indicators of credit expansion and property activity highlight a recovery, though the over-five-year loan prime rate may need to be cut if the economic rebound proves unsustainable, economists and analysts said.

POLICY: China's reference lending rate remained unchanged on Monday, according to a statement on the People's Bank of China website, which was in line with market expectations as the central bank kept a key policy rate steady on February 15.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY270 billion of operations via 7-day reverse repos, with the rates unchanged at 2.00%. The operation led to a net injection of CNY224 billion after offsetting the maturity of CNY46 billion reverse repos today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) dropped to 2.1354% from 2.2492% on Friday, Wind Information showed. The overnight repo average rose to 2.1512% from the previous 2.1476%.

YUAN: The currency strengthened to 6.8555 against the dollar from 6.8818 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.8643 on Monday, compared with 6.8659 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.9225%, up from Friday's close of 2.9025%, according to Wind Information.

STOCKS: The Shanghai Composite Index increased 2.06% to 3,290.34, while the CSI300 index was up 2.45% to 4,133.49. The Hang Seng Index edged up 0.81% to 20,886.96.

FROM THE PRESS: Economic data for January showed a “good start” as the continuous optimisation of epidemic prevention policies and real estate regulation took effect, but the economic recovery remains uneven, according to Guan Tao, a former official at the State Administration of Foreign Exchange. Writing for Yicai.com, Guan said the PMI index data from the government and Caixin showed good increases in demand, but that was mainly due to large enterprises, with SME data remaining stagnant. Data also showed recovery was strongest in the services industry, with manufacturing lagging behind. Data on household loans showed residents' willingness to increase leverage was insufficient, which shows there is still a long way to go to restore and expand consumer demand. The recent prepayment of housing loans issue shows it may take time for the real estate market to stabilise, he said.

The PBOC has issued a proposal outlining Swap Connect, a new program that will allow offshore investors access to the mainland interest rate swap market via Hong Kong, according to a statement published on the central bank's website. The PBOC said that transactions of interest rate products will be in yuan, and gave some detail on offshore investor participation requirements. The clearing houses managing the program should establish special risk reserve resources and default resolution arrangements. Foreign investors who use foreign exchange to participate in the clearing of Northbound Swap Connect transactions can open a yuan fund account with a Hong Kong clearing bank for fund exchange and settlement business, the PBOC statement said.

Pork prices will not fall further due to the recent National Development and Reform Commission announcement to increase storage by 20,000 tons, and because many loss making breeders are unable to absorb any further decrease in price, according to the Securities Daily Network. The paper cites analysts as saying secondary fattening of pigs has increased with many larger animals being held back in pens, which should help lift pork prices in the near term. In order to secure price stability for the long run, the industry needs to invest in technology to control costs and disease, the paper said.