MNI China Daily Summary: Thursday, January 5

LIQUIDITY: The People's Bank of China (PBOC) on Thursday conducted CNY2 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY356 billion after offsetting the maturity of CNY358 billion reverse repos today, according to Wind Information. The operation aims to keep banking system 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 1.3597% from 1.4552% on Wednesday, Wind Information showed. The overnight repo average decreased to 0.5334% from the previous 0.9156%.

YUAN: The currency strengthened to 6.8731 against the dollar from 6.8825 on Wednesday. The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.8926 on Thursday, compared with 6.9131 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.8630%, up from Wednesday's close of 2.8550%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 1.01% to 3,155.22, while the CSI300 index was up 1.94% to 3,968.58. The Hang Seng Index was up 1.25% to 21,052.17.

FROM THE PRESS: The PBOC will ensure monetary policy is sound, accurate and effective in 2023, following five years of unusual and extraordinary circumstances, according to a recent report posted on the central banks’ social media account. The PBOC said it will use a variety of monetary policy tools to maintain reasonable and sufficient liquidity, keeping money supply and social financing in line with nominal economic growth. Multiple measures will be made to reduce the financing costs for firms, and the yuan exchange rate will be kept stable. Efforts will be made to develop the international use of the yuan, the PBOC said.

China will further reform and open up its foreign exchange sector, according to an article posted on the State Administration of Foreign Exchange (SAFE) social media account. Setting out its plans for 2023, SAFE said it would reform the FX sector to better serve the real economy, maintain stable operation of currency exchange, and would continue stabilising China's foreign exchange reserves. Support would be given to SME’s to optimise FX services and hedge risk, and make better use of cross-border financial service platforms. It was also noted that in 2022 the balance of payments and currency exchange markets had shown resilience and stability.

China’s central bank is expected to expand Pledged Supplementary Lending (PSL) in 2023 as it constitutes the "precise and powerful" monetary policy called for by the Central Economic Work Conference, according to the Securities Daily. Given local government debt and pressure on commercial banks net interest margins, policy banks will play an important role in 2023, and the scale of PSL may increase, according to experts cited by the paper. The PSL has helped policy banks support projects in real estate and new infrastructure. The paper said the targeted lending tool supports weak links in the economy, and can effectively guide long-term interest rates down.