MNI China Daily Summary: Tuesday, December 20

EXCLUSIVE: China’s reference lending rates are expected to be lowered in the first quarter of 2023 to support the ailing property market after they were left unchanged this month as higher wholesale funding costs weighed on lenders.

POLICY: China's reference lending rate remained unchanged, according to a statement on the People's Bank of China (PBOC) website, which was in line with market expectations after the central bank kept a key policy rate steady last Thursday.

LIQUIDITY: The PBOC injected CNY5 billion via 7-day reverse repos, and CNY141 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operation has led to a net injection of CNY144 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operations aim to keep year-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7692% from the close of 1.7772% on Monday, Wind Information showed. The overnight repo average edged down to 1.1221% from the previous 1.1988%.

YUAN: The currency strengthened to 6.9715 against the U.S. dollar from the previous close of 6.9747. The PBOC set the dollar-yuan central parity rate higher at 6.9861 on Tuesday, compared with 6.9746 set on Monday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8850%, up from Monday's close of 2.8775%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 1.07% to 3,073.77, while the CSI300 index fell 1.65% to 3,829.02. Hong Kong's Hang Seng Index dropped 1.33% to 19,094.80.

FROM THE PRESS: The PBOC launched a 14-day reverse repo operation of CNY76 billion yuan at 2.15%, the first time since September the facility has been used. Together with its 7-day facility, the PBOC delivered a net injection of CNY83 billion yuan. According to Securities Daily, the move reflects increased liquidity demand at year-end, and a need to stabilise bond market confidence and support credit repair. It is also in line with the Central Economic Work Conference's call for maintaining reasonable and sufficient liquidity, the paper said.

Securities regulators in Hong Kong and the mainland have agreed to expand the scope of the Stock Connect program, according to a statement on the China Securities Regulatory Commission (CSRC) website. The expansion of northbound trade, which allows international investors access to mainland stocks, will now include Shanghai A-shares that have a market capitalisation of at least CNY5 billion, and be able to satisfy certain liquidity requirements. For southbound trading, which allows mainland investors access to Hong Kong stocks, the scope will now include foreign companies with their primary listing on the Hang Seng Composite Index, and with a market capitalisation of at least HKD5 billion. The move aims to further deepen the Stock Connect program and promote the common development of capital markets. The expansion will take around three months to implement, according to the CSRC.

China should increase policy efforts and aim to achieve a soft landing in the real estate market next year, and reversing expectations is the key, Yicai.com reported citing Ni Pengfei, director of the Center for City and Competitiveness at the Chinese Academy of Social Sciences. It is necessary to relax home purchase restrictions, lower home purchase costs, and encourage state-owned or high-quality private developers to purchase risky housing projects and convert them into affordable housing, Ni was cited as saying. Stabilising housing prices is key and some temporary control measures are recommended to be taken if there is an excessive decline, Ni added.