MNI China Daily Summary: Thursday, February 18

LIQUIDITY: The People's Bank of China (PBOC) injected CNY200 billion via one-year medium-term lending facilities (MLFs) with the rate unchanged at 2.95% on Thursday. This aims to roll over the same amount of MLFs maturing today. The PBOC also injects CNY20 billion via 7-day reverse repos. This resulted in a net drain of CNY260 billion given the maturity of CNY280 billion of reverse repos today, according to Wind Information. The operation aims to maintain reasonable and ample liquidity, as cash returns to the banking system after the Chinese New Year holiday, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.2289% from 2.2083% on Feb. 10, the last working day before the week-long Chinese New Year holiday, Wind Information showed. The overnight repo average increased to 2.3046% from the previous 1.8265%.

YUAN: The currency weakened to 6.4706 against the dollar from 6.4380 on Feb. 10. The PBOC set the dollar-yuan central parity rate higher at 6.4536 on Thursday. This compares with the 6.4391 set on Feb. 10.

BONDS: The yield on 10-year China Government Bond was last at 3.3200%, up from 3.2696% on Feb. 10, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.55% to 3,675.36, while the CSI300 index decreased 0.68% to 5,768.38. Hang Seng Index lost 1.58% to 30,595.27.

FROM THE PRESS: The PBOC may drain net liquidity after the New Year holiday with a small reduction in MLFs and reverse repos, the Shanghai Securities News reported citing Yan Se, chief economist of Founder Securities. The government faces less pressure on bond financing early this year compared to the previous years, so the central bank needs no large liquidity injection at this time, the newspaper said citing Shao Xiang, macro analyst of Soochow Securities. There will be CNY200 billion MLFs and CNY280 billion of reverse repos maturing on Thursday, the newspaper said.

Retail and dining sales in the week-long Chinese New Year rose 4.9% over the comparable period in 2019 to CNY821 billion, 28.7% more than last year, the Ministry of Commerce said on its website late Wednesday. Sales of jewellery and clothing more than doubled while communication and home electronics also registered double-digit growth, according to the Ministry. Restaurant sales in large cities surged as many residents avoided returning to rural ancestral homes and celebrated the holidays locally.

China's CPI may turn positive after March, the PBOC-run newspaper Financial News reported citing Wang Qing, an analyst with Golden Credit Rating. China is likely to face more moderate inflation in 2021 than other nations given its more stable monetary policy, slow wage growth and steady price expectations, the newspaper said citing Shen Jianguang, chief economist of JD Digits. In the long run, inflation and increasing asset prices due to higher importing costs may be a concern, Shen added. China's CPI fell 0.3% y/y in January after gaining 0.2% in the previous month.