MNI China Daily Summary: Friday, April 15

TOP NEWS: The People's Bank of China (PBOC) cut the cash reserve ratio requirement for banks on Friday to release CNY530 billion long-term funds into the banking system to boost the economy, support SMEs and lower funding costs. The central bank cut the RRR at a full pace by 25 basis points for most banks whose RRR is higher than 5%, and urban commercial banks that do not operate across provinces as well as rural commercial banks with a reserve ratio higher than 5%, will get an additional 25 bps cut, so as to increase support for smaller companies and the agriculture sector.

LIQUIDITY: The PBOC injected CNY150 billion via a 1-year medium-term lending facility and CNY10 billion via 7-day reverse repos with the rates unchanged at 2.85% and 2.10%, respectively. The operations keep the liquidity unchanged after offsetting the maturity of CNY150 billion MLF and 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) fell to 1.7295% from the 1.8605% on Thursday, Wind Information showed. The overnight repo average decreased to 1.3444% from the previous 1.5096%.

YUAN: The currency weakened to 6.3712 against the dollar from 6.3704 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.3896, compared with 6.3540 set on Thursday, marking the biggest daily drop since Jan 28.

BONDS: The yield on 10-year China Government Bond was last at 2.8075%, up from Thursday's 2.7900%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.45% to 3,211.24, while the CSI300 index edged down 0.07% to 4,188.75. The Hong Kong market was closed on publich holiday.

FROM THE PRESS: The PBOC may cut the reserve requirement ratio on Friday, taking the window opportunity before the Federal Reserve hikes interest rates and shrinks its balance sheet again, the Securities Daily reported citing Wen Bin chief researcher of Minsheng Bank. The probability of policy rate cut in April will be reduced accordingly if RRR was cut this month, the newspaper said citing Wen. A RRR cut can provide banks with sufficient funds to allocate treasury bonds and local government special bonds, coordinating with the fiscal efforts to promote investment, the newspaper said citing Wen.

China’s infrastructure investment may grow over 10% y/y in Q1, with this year’s total likely to rise by 5-8%, driving up economic growth, the China Securities Journal reported citing analysts. The National Development and Reform Commission has approved 11 projects, with a total investment of CNY287.9 billion in Q1, the second-highest reading for the same period since 2016, just less than Q1 2019, the newspaper said. Infrastructure demand may exceed the market's expectation in Q2 as the epidemic eases and fiscal efforts continue to accelerate projects, the newspaper said.

Large banks are encouraged to lower their provision coverage in an orderly manner, so to increase their lending ability, the China Securities Journal reported. The asset quality of the banking industry has been greatly improved with the non-performing ratio at a low level of 1.73% by end-2021, leaving downward space for lowering the 196.91% provision coverage ratio without affecting banks’ risk control needs, the newspaper said. The loan loss provision-to-outstanding non-performing loans ratio is required to fall between 120% and 150%, the newspaper added.