MNI China Daily Summary: Tuesday, September 6

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 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 1.4015% from the close of 1.3501% on Monday, Wind Information showed. The overnight repo average rose to 1.0710% from the previous 1.0320%.

YUAN: The currency weakened to 6.9485 against the U.S. dollar from Monday's close of 6.9366. The PBOC set the dollar-yuan central parity rate higher at 6.9096, compared with 6.8998 on Monday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6200%, down from Monday's close of 2.6250%, according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 1.36% to 3,243.45, while the CSI300 index gained 0.92% to 4,052.28. Hong Kong's Hang Seng Index edged down 0.12% to 19,202.73.

FROM THE PRESS: The PBOC's cut to the foreign exchange reserve requirement ratio on Monday is an early move to curb expectations of a rapid decline in the yuan against the U.S. dollar, the 21st Century Business Herald reported citing analysts. Some foreign investors have expected continued yuan depreciation as the US Dollar Index marches towards 110, and as the euro and yen hit their lowest levels in 20 years, the newspaper said citing an unnamed trader in Hong Kong. Speculators have also increased bets on a declining yuan, adding to bearish sentiment, the newspaper added. Both the onshore and offshore yuan quickly rebounded by about 200 basis points following the PBOC’s move, as some overseas investors reduced indiscriminate short selling, the newspaper said.

The PBOC is expected to continue adding small amounts of liquidity into the financial system in the short-term, the Securities Daily reported citing analysts. The PBOC’s daily injections of CNY2 billion via reverse repos since late July signals its intent to keep liquidity reasonably ample, the Daily said. The liquidity outlook in September will be complicated by the maturity of a CNY600 billion medium-term lending facility and as banks hold onto capital ahead of end of quarter regulatory assessments, the newspaper said citing Wang Youxin, senior researcher at Bank of China. However, government spending generally increases in September, with the decline in government deposits expected to provide some support for liquidity, Wang added.

China will strengthen funding to accelerate project construction and promote spending on vehicles, home appliances and furnishing, the China Securities Journal reported citing officials speaking at a Monday briefing. There will also be additional support for the catering and accommodation sectors. The Ministry of Finance will ensure local governments make good use of the additional CNY500 billion of special bonds to fund infrastructure construction in transportation, energy, water conservation and cold chain logistics. The National Development and Reform Commission will accelerate project selection and the release of funds to help kick off construction as soon as possible, the newspaper said citing officials.