MNI China Daily Summary: Wednesday, March 24

EXCLUSIVE: China's rising factory gate inflation is unlikely to lead directly to higher consumer prices and while both are expected to end the year above current levels, neither should be taken as a key indicator for bond yield moves in the short term, advisors and analysts told MNI.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Wednesday. This keeps the liquidity unchanged after offsetting the maturity of 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) decreased to 1.9399% from the close of 2.0985% on Tuesday, Wind Information showed. The overnight repo average fell to 1.8402% from the previous 1.9608%.

YUAN: The currency weakened to 6.5236 against the dollar from 6.5108 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.5228, compared with the 6.5036 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.2300%, down from Tuesday's close of 3.2500%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 1.30% to 3,367.06, while the CSI300 index lost 1.61% to 4,928.69. Hang Seng Index tumbled 2.03% to 27,918.14.

FROM THE PRESS: China's fiscal and monetary policies will continue to favor growth this year to ensure the economy fully recovers from the pandemic, the 21st Century Business Herald reported citing Guan Tao, the chief economist at BOC International and a former official at SAFE. While the government restated the need to control macro leverage and debt risks it isn't this year's top priority, and the budget deficit was also targeted above the usual 3%-GDP level, Guan told the newspaper. China's opening up means it is likely to tolerate a wider movement of the yuan, which will be decided by a host of factors including the dollar, U.S. policies and both domestic and global economies, he said.

China must stop property speculation and earn wealth by boosting supply and strictly verifying that intended purchases have legitimate intent, the Economic Information Daily said in a front-page commentary, citing February home price data that showed increases in 56 monitored cities. Authorities should increase taxation and punish the illicit use of capital to buy properties, it said. Larger cities must also develop policy-supported housing and enhance the rental market, the Daily said.

The PBOC is unlikely to raise rates and tighten policies to manage imported inflation, despite some emerging economies including Turkey using rate hikes to stop their plunging currencies, the 21st Century Business Herald reported citing analysts. Imported inflation may drive up China's PPI more significantly than CPI, but PPI growth is expected to decelerate in H2 on the base effect, the newspaper said citing Chi Guangsheng, an analyst at Essence Securities. China is unlikely to experience large-scale capital outflows as its economy strengthens further, and China's opening of financial markets is giving investors more confidence, Chi said.