MNI China Daily Summary: Tuesday, August 23

LIQUIDITY: The People's Bank of China (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 1.3864 from the close of 1.3807% on Monday, Wind Information showed. The overnight repo average fell to 1.1073% from the previous 1.1381%.

YUAN: The currency weakened to 6.8510 against the dollar from Monday's close of 6.8384. The PBOC set the dollar-yuan central parity rate higher at 6.8523, compared with 6.8198 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.6360%, up from Monday's close of 2.6275%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.05% to 3,276.22, while the CSI300 index fell 0.49% to 4,161.08. The Hong Kong's Hang Seng Index lost 0.78% to 19,503.25.

FROM THE PRESS: The PBOC is likely to release long-term low-cost funds by reducing the reserve requirement ratio given that there will be a large amount of medium-term lending facility funds maturing from September to December, the Securities Times noted in a front-page commentary. Meanwhile, the central bank may further guide down the benchmark Loan Prime Rates following the reductions recorded earlier this week. The 5-year LPR can be lowered further to drive down the mortgage interest rates, as the rates applied to many outstanding mortgages are still higher than wealth management product yields and deposit interest rates, which will lead to increased mortgage prepayment and affect the stability of the scale of loans, the newspaper said.

The PBOC said major financial institutions, especially large state-owned banks, should take the lead in maintaining the stability of loan growth, as the economic recovery is at the most arduous point requiring urgent consolidation, according to a statement on the PBOC website following a meeting with major banks chaired by Governor Yi Gang. It is necessary to increase credit issuance to the real economy, further supporting SMEs, green development and technological innovation, per the statement. Banks should also ensure that they meet the reasonable financing needs of the real estate sector as well as the platform economy, the statement noted.

Real estate bonds issued by some leading developers have largely rebounded following Monday's 15bp reduction in the 5-year Loan Prime Rate, Yicai.com reported. This comes in the wake of widespread declines over the last two months. Some bonds, which were trading at less than half of their issuance price, soared by as much as 47% in a single day, the newspaper said. But many investors still maintain a highly cautious attitude towards real estate bonds, as such a rebound may not be sustainable owing to still sluggish home sales and the ongoing liquidity crisis facing developers, the newspaper noted, citing institutional investors.