MNI China Daily Summary: Friday, May 20

LPR: China's central bank on Friday cut its lending reference rate for the first time in four months as the world's second-largest economy has proved to be significantly impacted by the latest outbreak of the Omicron variant. The Loan Prime Rate, which guides companies' cost of borrowing, was lowered by 15bps to 4.45% for the five-year and above maturity, with the one-year rate unchanged at 3.7%.

REVIEW: The People's Bank of China (PBOC) cut its long-term lending reference rate at an unexpected-pace Friday, sending a clear signal to boost a soft property market, which is a key driving force to reach Beijing's growth target this year. The Loan Prime Rate, guiding lenders’ actual loan interest rates, was lowered by 15bps to 4.45% for the five-year maturity, the second cut this year after a 5bps reduction in January. The PBOC has already lowered the floor of mortgage interest rates for first-time house buyers to 20 basis points below the LPR, and the minimum mortgage rate could drop to as low as 4.25%, the lowest in a decade and compared to the national wide average one at 5.49% as of the end of March, according to Wind.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 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) decreased to 1.5839% from the 1.5848% on Thursday, Wind Information showed. The overnight repo average fell to 1.3209% from the previous 1.3952%.

YUAN: The currency slightly strengthened to 6.6740 against the dollar from 6.7678 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.7487, compared with 6.7524 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 2.8160%, up from Thursday's close of 2.8075%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 1.60% to 3,146.57 while the CSI300 index gained 1.95% to 4,077.60. Hang Seng Index rallied 2.96% to 20,717.24.

FROM THE PRESS: The yuan may fluctuate between 6.7 to 7.0 against the U.S. dollar in the near term as the central bank may intervene to prevent any rapid depreciation, wrote Zhang Ming, senior fellow of the Institute of Finance and Banking at the Chinese Academy of Social Sciences in a blog post. Neither inflation nor the currency would be a constraint on the central bank to continue with monetary easing in the short term, as higher inflation is still half a year away, said Zhang. Monetary policy should be looser with rate and RRR cuts to match with fiscal expansion to boost the economy, Zhang added.

China should issue CNY2 trillion of special Treasury bonds to fund epidemic control and subsidise consumer coupons to lower-income groups, the Securities Times reported citing analysts. Fiscal policy should strengthen support for small business financing by offering fiscal discounts, loan guarantees or increasing the write-off of non-performing loans, the newspaper cited analysts as saying. It is necessary to expand fiscal discounts for struggling companies, the newspaper said citing Wang Yifeng, chief banking analyst at Everbright Securities.

Shanghai will focus on helping small and medium-sized enterprises to resume operations from the Covid-19 lockdown, the Shanghai Securities News reported. Many SMEs especially in catering, entertainment, maintenance, and logistics were hit hard by the epidemic, the newspaper said. The government will prioritise refunding taxes for SMEs, and it is estimated that enterprises in Shanghai will see relief totaling about CNY140 billion in 2022, the newspaper said. The government will also magnify financing guarantees for SMEs to help them renew their loans, the newspaper said.