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Free AccessMNI China Daily Summary: Thursday, September 8
POLICY: Chinese consumer price inflation is forecast to edge close to the government’s 3% target in August after a punishing heatwave boosted some food prices, but the rate of producer price inflation should ease due to falls in crude oil, analysts said. Median forecasts for Friday’s data point to August CPI printing at a year-on-year rate of 2.8%, up from 2.7% in July, while PPI eases to 3.2% from 4.2%.
POLICY: The People’s Bank of China (PBOC) will expand use of e-CNY by incorporating it into a wide range of smart contracts, helping retain its lead among central banks in the development of digital currencies, Bank officials told a forum on Thursday. The PBOC will set incentives for banks to speed up e-CNY use and ensure “open, neutral, credible and stable” infrastructure, said PBOC Vice Governor Fan Yifei at the China Digital Finance Forum 2022.
LIQUIDITY: The PBOC injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.0%. This keeps the liquidity unchanged after offsetting the maturity of CNY2 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) increased to 1.4538% from 1.4528% on Wednesday, Wind Information showed. The overnight repo average rose to 1.1589% from the previous 1.1154%.
YUAN: The currency strengthened to 6.9639 against the dollar from 6.9715 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.9148, compared with 6.9160 set on Wednesday.
BONDS: The yield on 10-year China Government Bond was last at 2.6300%, up from the previous close of 2.6270%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 0.33% to 3,235.59, while the CSI300 index edged down 0.43% to 4,037.68. The Hang Seng Index fell 1.00% to 18,854.62.
FROM THE PRESS: The threat of a break in the yuan through 7 against the U.S. dollar will have a limited impact on capital flows and longer term sentiment towards the currency, the China News Service reported citing analysts. The level of the yuan is less important than stable cross-border capital flows, the newspaper said citing Zhong Zhengsheng, chief economist at Ping An Securities. Previous breaches of the 7 level in 2019 and 2020 show it is unlikely the currency will overshoot sharply to lower levels.
China's foreign exchange reserves dropped by USD49.19 billion to USD3.05 trillion by the end of August 2022, the 21st Century Business Herald reported, citing data from the State Administration of Foreign Exchange. The sharp rise in the U.S. dollar led to a significant drop in the valuation of non-U.S. assets. Analysts believe Chinese authorities can stabilize the yuan without using FX reserves as it has abundant policy tools, including withdrawing liquidity from the offshore market, reintroducing the counter-cyclical factor and cutting the FX reserve ratio.
China’s export growth may slow due to weakening external demand and tough comparisons compared to Sept-Dec 2021 when exports grew more than 20%, said a 21st Century Business Herald commentary. Exports may be resilient as low-cost products are in demand at a time of high global inflation. Additionally, China still has advantages in manufacturing as the pandemic and war in Ukraine disrupt global supply chains. The recent yuan depreciation against the U.S. dollar will boost exports, the newspaper added.
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.