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DATA: Retail sales slumped 11.1% y/y in April to the worst outcome since March 2020, extending the 3.5% decline last month, and worse than the forecast 6.2% decline, data by the National Bureau of Statistics on Monday showed. Industrial production unexpectedly fell 2.9% y/y in April, part reversing a 5.0% March gain and turning negative for the first time since March 2020. Fixed-asset investment slowed to 6.8% y/y in the first four months, from Q1's 9.3% gain, missing the 7.0% forecast.
POLICY: The People’s Bank of China (PBOC) lowered its floor for mortgage interest rates for first-time house buyers on Sunday to boost the property market and the economy, according to a statement on the central bank website. The minimum mortgage rate is cut to 20 basis points below the loan prime rate with five-year and above tenors, the PBOC said. The LPR with five-year and above tenors was set at 4.6% last month and the PBOC updates it on the 20th of every month.
POLICY: The PBOC pledged to further open up its financial markets as the international Monetary Funds raised the yuan’s weighting in the Special Drawing Rights currency basket, according to a statement on PBOC’s website on Sunday. The yuan’s weighting was lifted to 12.28% from 10.92% which was set in 2016 when the currency was included in the basket.
POLICY: The PBOC should act to stabilise FX market expectations of a weaker yuan against a rallying dollar, Sheng Songcheng, a former director of the PBOC’s statistics department said on Saturday at an economic forum. The central bank should reverse sentiment betting on continuous yuan depreciation, if necessary, through measures, including reintroduction of the counter-cyclical factor into the PBOC’s daily fixing formula, further reduction of the FX deposit reserve requirement ratio, or increasing issue of central bank bills in the offshore market, he suggested.
POLICY: China should restructure its overseas assets and liabilities as the safety of its massive forex reserves may be threatened by potential geopolitical conflicts between China and the U.S, said Yu Yongding, former advisor to the PBOC on Saturday at an economic forum. The safety of China’s overseas assets is facing “huge challenge” after the U.S moved to freeze Russia’s foreign currency reserves, he said, suggesting China could reduce the holding of U.S Treasuries and diversify its forex reserves.
POLICY: China should place top priority on bailing out the economy, and the central bank needs to be cautious while widely using its structural monetary tools, said Huang Yiping, a former adviser to the PBOC said on Saturday at an economy forum. “It is time to take whatever policy (actions) we could to save the economy,” he said, noting many companies and households are suffering a liquidity crunch in the third year of the anti-Covid-19 campaign.
POLICY: Shanghai is expected to return to normal life and operations in June with a condition that current strict controls manage to curb the Covid-19 spread, a senior Shanghai official said on Monday in a press conference.
LIQUIDITY: The PBOC injected CNY100 billion via one-year medium-term lending facilities and CNY10 billion via seven-day reverse repos with the rates unchanged at 2.85% and 2.10%, respectively. The operation has led to a net drain of CNY10 billion after offsetting the maturity of CNY100 billion MLF and CNY20 billion repos 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) increased to 1.5849% from 1.5496% on Friday, Wind Information showed. The overnight repo average decreased to 1.3108% from the previous 1.3115%.
YUAN: The currency weakened to 6.7967 against the dollar from 6.7830 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.7871, compared with 6.7898 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.8200%, down from Friday's close of 2.8150%, according to Wind Information.
STOCKS: The Shanghai Composite Index fell 0.34% to 3,073.75 while the CSI300 index edged down 0.80% to 3,956.54. Hang Seng Index gained 0.26% to 19,950.21.
FROM THE PRESS: China should advance and strengthen fiscal and monetary policies, focusing on stabilising employment and prices and spurring domestic growth to offset expected weaker external demand, wrote Guan Tao, former forex official and chief economist at BOC Securities in a blog post. Monetary policy faces challenges when prices rise amid growing imported inflation driven by the Russia-Ukraine conflict, said Guan. The monetary authority should maintain the flexibility of the yuan while keeping it at a reasonable equilibrium level and absorbing internal and external shocks, said Guan.
A recent yuan correction has not placed constraints on China’s monetary policy options, as the PBOC will prioritise stabile economic growth and the real economy, the Economic Daily reported citing analysts. A yuan depreciation largely against the U.S. dollar has not been the case against a basket of foreign currencies, indicating the competitiveness of China’s exports and the resilience of the balance of payments, the newspaper said citing Feng Xuming, researcher at Chinese Academy of Social Sciences. The PBOC should consider lowering policy interest rates to lower the real economy’s existing debt burden and financing costs, as quantitative monetary policy tools prove ineffective amid weak borrowing demand by companies, the newspaper cited Feng as saying.
The resumption of work in Shanghai is improving with the effective control of the spread of Covid-19, the state-owned Science and Technology Daily reported. Over 4,400 out of 9,000 industrial enterprises above designated size have resumed operations. Key industrial sectors such as automobiles, integrated circuits and biomedicine continued to recover, the newspaper said. The city has issued more than 100,000 certificates to enable workers to return to work and is coordinating with neighbouring provinces to resolve logistic difficulties, the newspaper said.
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