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POLICY: China must shore up a collapse in buyer confidence that unfinished housing projects by struggling property developers may not get completed on time as boycotts on paying mortgages spread across the country, adding more pressure on the still bleak real estate sector, according to analysts.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY3 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) fell to 1.5236% from 1.5677% on Wednesday, Wind Information showed. The overnight repo average decreased to 1.2477% from the previous 1.2709%.
YUAN: The currency weakened to 6.7634 against the dollar from 6.7530 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 6.7620 on Thursday, compared with 6.7465 set on Wednesday.
BONDS: The yield on 10-year China Government Bond was last at 2.7640%, down from the previous close of 2.7675%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 0.99% to 3,272.00, while the CSI300 index lost 1.11% to 4,236.06. Hang Seng Index tumbled 1.51% to 20,574.63.
FROM THE PRESS: China should continue with expansionary fiscal and monetary policies even as inflation rises to maintain relatively high economic growth to address the unemployment issue, wrote Yu Yongding, former advisor to the People’s Bank of China in an article published on the WeChat account of China Finance 40 Forum. Inflation is very likely to rise as demand rebounds and the pandemic eases. The rising pork price cycle may also come into play, said Yu. China should tolerate a higher inflation rate, though it is more of a social and political issue rather than an economic one, said Yu, without specifying the possible ceiling.
The benchmark Loan Prime Rate for five-year maturity and above, which lenders base their mortgage rates, still has downward space in Q3 to help boost the property market and stabilise economic growth, the Shanghai Securities News reported citing analysts. Considering the expected monetary tightening overseas, the People’s Bank of China will focus on keeping policy rates such as the rate of Medium-term Lending Facility stable while guiding actual loan interest rates down to lower the financing cost of the real economy, the newspaper said citing analysts. The one-year and five-year LPR was kept unchanged at 3.7% and 4.45% on Wednesday, respectively.
China’s infrastructure investment may be lifted to double-digit growth in 2022 with sufficient supporting funds kicking in in the second half of the year, Yicai.com reported citing analysts. As of July 17, a total CNY4.08 trillion of local government bonds was sold, including CNY3.43 trillion of infrastructure-back special bonds, the newspaper said. A considerable part of the funds will be used in H2, in addition to CNY800 billion credit line of policy banks and CNY300 billion financial bonds to support the financing of major projects, Yicai said. Infrastructure investment is expected to grow 8-10% y/y by year-end from H1’s 7.1%, the newspaper said citing Luo Zhiheng, chief economist of Yuekai Securities.
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