MNI China Daily Summary: Thursday, May 19

PREVIEW: A small cut in the People’s Bank of China’s (PBOC) key lending reference rate could come Friday, with a deeper drop constrained by a pickup in inflation, a weaker yuan, and doubts on the effectiveness of monetary easing while Covid-19 lockdowns remain. The loan prime rate (LPR) is likely to be cut on May 20 to bolster credit demand, the focus of the PBOC to support employment and boost the domestic economy, said Li Chao, chief economist at Zheshang Securities and a former official at the central bank.

POLICY: Shanghai plans to resume company operations and resume cross-district public traffic at a gradual pace from the end of May, city officials said on Thursday at a daily press conference.

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) increased to 1.5848% from 1.5550% on Wednesday, Wind Information showed. The overnight repo average rose to 1.3952% from the previous 1.3267%.

YUAN: The currency weakened to 6.7678 against the dollar from 6.7490 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 6.7524, compared with 6.7421 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.8075%, down from the previous close of 2.8000%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.36% to 3,096.96, while the CSI300 index increased 0.19% to 3,999.60. Hang Seng Index tumbled 2.54% to 20,120.68.

FROM THE PRESS: Chinese Premier Li Keqiang urged all departments and local governments to increase a sense of urgency and carry out as many new pro-growth measures as possible to bring the economy back to normal track quickly, CCTV News reported citing a meeting hosted by Li on Wednesday. Prices are currently stable, leaving policy room, said Li. China will give priority to safeguarding employment, guiding financial institutions to defer interest payment on loans to small businesses and ensuring stable food production and energy supplies, according to Li.

A senior Chinese monetary policymaker, Sun Guofeng, former director of the Monetary Policy Department of the People's Bank of China, is under investigation of “suspected serious violation of laws and discipline”, Quanshang China, a social media outlet of Securities Times reported citing the party’s anti-graft watchdog. Zou Lan, currently head of the financial market in PBOC will take up the post, the newspaper said. Beijing’s disciplinary crackdown on the financial sector has accelerated, with many upper-level officials being taken down, including Mou Shangang, former director of the central bank's service center, and Yang Xiaoping, former head of the PBOC’s Kunming branch, the newspaper said.

China should issue more consumer coupons to help change consumers’ cautious attitudes on spending, the 21st Century Business Herald reported citing analysts after April retail sales fell 11.1% y/y to hit two-year low. Local governments should take an active role in coupon design and tilt toward lower-income groups. In Guangxi, an autonomous region in southern China, consumer coupons issued from April 30 to May 1 had driven sales with a leverage ratio of 1:13.5, the newspaper said. Analysts also noted that imported pressures may restrain household consumption if international food and energy prices continue to rise or remain high, the newspaper said.