MNI China Daily Summary: Tuesday, October 20

POLICY: China will stabilize consumption in key areas and tap into internet-based services to aid spending and promote a strong domestic market, said Meng Wei, spokeswoman of the National Development and Reform Commission at a briefing on Tuesday. The NDRC will promote the replacement of old cars and home appliances and guide local governments to relax car purchase limits.

LPR: China's central bank maintained its key loan rate unchanged today for the sixth month in a row as it aims to normalize monetary policy and keep any broad easing in reserve to deal with future economic challenges. The October Loan Prime Rate, the benchmark to set companies' cost of borrowing, remains at 3.85% for the one-year maturity and at 4.65% for the five-year maturity.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY70 billion via 7-day reverse repos with the rate unchanged. This resulted in a net injection of CNY70 billion as no reverse repos matured, 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 2.3046% from 2.2494% on Monday, Wind Information showed. The overnight repo average fell to 2.1367% from the previous 2.1995%.

YUAN: The currency strengthened to 6.6818 against the dollar from 6.6935 on Monday. The PBOC set the dollar-yuan central parity rate below the 6.7000 level at 6.6930, compared with the 6.7010 set on Monday, the strongest parity rate since Apr 18, 2019.

BONDS: The yield on the 10-year China Government Bond was last at 3.1900%, down from the close of 3.1950% on Monday, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.47% to 3,328.10, while the CSI300 index edged up 0.80% to 4,793.47. Hang Seng Index gained 0.11% to 24,569.54.

FROM THE PRESS: The yuan is likely to fluctuate around the current level after a period of strength, as the dollar index has reached a phasic low and a stronger yuan threatens to pressure exports, the Economic Information Daily reported citing Xu Gao, an economist at BOC International. The yuan has been propelled by China's better prevention and control of the pandemic and widening Sino-U.S. interest rate differentials, Xu said. The PBOC will continue to ensure the yuan's flexibility through macro-policies and the balance of payments, the newspaper said citing recent comments by Sun Guofeng, the head of the PBOC's Monetary Policy Division.

The PBOC may inject additional funds via reverse repo operations this month as tax payments and the large scale of government bond issuance drains liquidity, the China Securities Journal reported citing unidentified market sources. October is the traditional peak season for tax collections, while analysts expect the net supply of both China Government Bonds and local government bonds to exceed CNY700 billion this month, straining liquidity, the newspaper said. As the PBOC previously suspended reverse repo operations there are only CNY100 billion of reverse repos maturing, leaving room for new injections, the Journal said.

China will speed up the construction of high-tech infrastructure including 5G, artificial intelligence and data centers, so to better support the development of the virtual reality industry, the Securities Times reported citing a speech by Vice Premier Liu He. Speaking at the 2020 World Conference on the VR Industry, Liu said the application of 5G+VR technologies should be accelerated in manufacturing, education, medical care, culture and entertainment as well as trade and logistics.