MNI China Daily Summary: Tuesday, August 9

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation led to a net drain of CNY40 billion after offsetting the maturity of CNY2 billion in repos and CNY40 billion in Treasury deposits at commercial banks 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 1.3278% from the close of 1.2850% on Monday, Wind Information showed. The overnight repo average rose to 1.0221% from the previous 1.0137%.

YUAN: The currency strengthened to 6.7542 against the dollar from Monday's close of 6.7602. The PBOC set the dollar-yuan central parity rate lower at 6.7584, compared with 6.7695 on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7375%, flat from Monday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index gained 0.32% to 3,247.43, while the CSI300 index edged up 0.20% to 4,156.29. Hong Kong's Hang Seng Index fell 0.21% to 20,003.44.

FROM THE PRESS: The PBOC may reduce the amount of medium-term liquidity in the banking system during next Monday’s MLF operation, as continued loose funding conditions in the interbank market have resulted in increased leverage and arbitrage plays, the 21st Century Business Herald reported, citing analysts. In the first week of August, the DR001 rate fell to around 1%, while the DR007 rate fell below 1.3%, with both measures reaching their lowest levels in 2022, and clearly below the 7-day reverse repo rate of 2.1%. The substantial deviation of market interest rates from policy rates will weaken the guiding role of policy rates and hinder monetary policy transmission, with the newspaper noting that the central bank is likely to intervene moderately if DR001 falls below 1%, citing Ming Ming, chief economist at CITIC Securities.

China is expected to further increase its use of pro-growth policies, with fiscal and monetary policy becoming fully coordinated in the second half of 2022, the Securities Daily reported, citing analysts. Local governments may be allowed to add up to CNY1.55 trillion of special bonds in H2, which would facilitate a continued acceleration of infrastructure investment, the newspaper said, citing Wang Qing, chief analyst of Golden Credit Rating. The People’s Bank of China should keep liquidity reasonably ample amid fiscal expansion, so as to prevent market interest rates from rising too quickly, Wang said.