MNI China Daily Summary: Thursday, September 22

POLICY: The People’s Bank of China (PBOC) is expected to cut policy rates and lower reserve requirement ratios further in the fourth quarter as it seeks to boost credit expansion by lowering banks’ funding costs, analysts said.

LIQUIDITY: The PBOC injected CNY2 billion via 7-day reverse repos and CNY16 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operations have led to a net injection of CNY16 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity stable at quarter-end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5962% from 1.6748% on Wednesday, Wind Information showed. The overnight repo average decreased to 1.4560% from the previous 1.4638%.

YUAN: The currency weakened to 7.0810 against the dollar from 7.0535 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 6.9798, compared with 6.9635 on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.6750%, up from Wednesday's close of 2.6660%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.27% to 3,108.91, while the CSI300 index lost 0.88% to 3,869.34. The Hang Seng Index tumbled 1.61% to 18,147.95.

FROM THE PRESS: China’s real interest rates should not be significantly reduced in the short term as they are below the potential economic growth rate and any large reduction could cause unwanted side effects, the 21st Century Business Herald reported, citing an unnamed state-owned bank bond trader. The central bank’s Monetary Policy Department said in an article on Tuesday that the country’s deposit and loan interest rates, which are slightly lower than the potential growth rate, are viewed as being at a reasonable level that provides room for policy changes. The real interest rate after deducting inflation is around 1-3%, compared to expected GDP growth of 3-4% this year and a 5% potential economic growth rate, the newspaper said, citing Wu Chaoming, vice president of Chasing Institute.

Issuance of China Government Bonds (CGBs) has grown rapidly this year, notably in ultra-short-term maturities, to help fund a fiscal deficit and stabilise economic growth, the Securities Daily reported. A total of CNY6.23 trillion of CGBs were issued as of Sept 21, a rise of 33.8% y/y, the newspaper said citing data from iFinD. Bonds with maturities of less than a year accounted for 31.36% of the total, compared with 22.07% in same period last year. China will use short-term treasury bonds to raise funds for tax rebates and ensure the operation of local governments, the newspaper said, citing Wang Xiaolong, director of the Treasury Department of the Ministry of Finance.