MNI China Daily Summary: Monday, June 24

EXCLUSIVE: China's rising pork prices will drive consumer inflation to about 1% in H2, while a reversion of falling factory-gate prices may depend on whether property can stabilise, advisors and analysts told MNI, adding further fiscal efforts to boost demand were needed due to monetary-policy constraints.

POLICY: Beijing will encourage cities to relax vehicle purchase restrictions and quotas in efforts to boost consumption, a notice on the National Development and Reform Commission website said.

LIQUIDITY: The PBOC conducted CNY50 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY46 after offsetting the CNY4 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.0074% from 1.9477%, Wind Information showed. The overnight repo average increased to 1.9772% from 1.9564%.

YUAN: The currency weakened to 7.2618 against the dollar from previous close of 7.2613. The PBOC set the dollar-yuan central parity rate higher at 7.1201, compared with 7.1196 set on Friday.

BONDS: The yield on 10-year China Government Bonds was last at 2.2450%, down from 2.2590% at the previous close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 1.17% to 2,963.10 while the CSI300 decreased 0.54% to 3,476.81. The Hang Seng Index closed flat at 18,027.71.

FROM THE PRESS: The yuan will continue to face depreciation pressure in the short term and likely fluctuate around 7.24 to 7.29 against the U.S. dollar this week, Yicai.com reported citing Wang Qiangsong, head of research at Nanyin Wealth Management. The central bank is expected to maintain yuan stability in the onshore market judging by PBOC Governor Pan Gongsheng’s recent statement, said Wang. The deviation of the yuan central parity rate from the model is still close to 1,000 points, showing the central bank's willingness to maintain stability by setting a stronger central parity, said Yicai.

The People’s Bank of China is likely to cut the reserve requirement ratio in Q3 as government-bond issuance peaks and credit expansion tends to quicken, Securities Daily reported citing Wang Qing, chief macro analyst at Golden Credit Rating. An RRR cut to release long-term funds is still necessary considering the overall excess reserve ratio of banks is currently low, said Ming Ming, chief economist at CITIC Securities. Increased funding demand by month-end pushed up the overnight weighted average interbank pledged repo (DR001) rate to form an inversion with the 7-day (DR007) rate last week. While the rates could move higher with the maturity of CNY398 billion reverse repo this week, the inversion may not persist, the newspaper said citing analysts.

Authorities are unlikely to implement a property tax “for a long time” given a lack of consensus on the way forward, according to Lv Bingyang, executive director at the Institute of Finance and Taxation at Renmin University. Officials nationwide have suspended real-estate tax pilot programmes given the sluggish real-estate market, Lv added. However, other experts said property taxation remains a major long-term strategy, Yicai noted. China needs to optimise the distribution of value-added and corporate income tax between central and local governments, Lv said.