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POLICY: A near-term rebound will be slow in China even as Shanghai could soon emerge from nearly two months of lockdown after key data this week showed the economy was hit the hardest since the initial outbreak of Covid-19 pandemic two years, according to analysts.
POLICY: The People’s Bank of China (PBOC) is expected to curb any rapid weakness of the yuan and the currency would swing in a wide range of 6.7 to 7.0 against the dollar, said Zhang Ming, senior fellow of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, in his latest commentary piece on the yuan. The central bank may take action in the offshore market, restart the use of the counter-cyclical factor in its CNY fixing formula and lift the FX risk reserve ratio for forward forex trading, he said, noting a sharp depreciation of the yuan could fuel market sentiment and worsen capital outflows.
LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 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) fell to 1.5257% from the close of 1.5849% on Monday, Wind Information showed. The overnight repo average increased to 1.3222% from the previous 1.3108%.
YUAN: The currency strengthened to 6.7472 against the dollar from Monday's close of 6.7967. The PBOC set the dollar-yuan central parity rate lower at 6.7854, compared with 6.7871 set on Monday.
BONDS: The yield on 10-year China Government Bonds was last at 2.8160%, down from Monday's close of 2.8200%, according to Wind Information.
STOCKS: The Shanghai Composite Index gained 0.65% to 3,093.70, while the CSI300 index rose 1.25% to 4,005.89. The Hong Kong's Hang Seng Index rallied 3.27% to 20,602.52.
FROM THE PRESS: Benchmark Loan Prime Rates are expected to be slightly lowered on Friday, the 21st Century Business Herald reported citing Wang Yifeng, chief analyst at Everbright Securities. Though the central bank on Monday failed to cut the medium-term lending facility rate, which is an anchor to LPR, banks may add less points to form the LPR quotation this month as they enjoy lower deposit costs after the deposit interest rate reform at the weekend, and a reserve requirement ratio cut in April, the newspaper said. A cut to the MLF rate is restrained by rising prices and it could pressure the yuan and capital outflows, the newspaper added.
China is expected to usher in a peak sales of local government special bonds between Q2 and Q3, to help boost infrastructure investment, aiming to complete the issuance of all CNY3.65 trillion special bonds by Q3, the Shanghai Securities Daily reported citing analysts. Local governments may accelerate and widen the use of special bonds to new areas such as urban gas and heating pipeline projects, the newspaper said. After the issuance of the main part of local government bonds in H1, local authorities could face certain fiscal pressure in H2 given increased anti-Covid-19 costs, which may mean higher deficits and issuing special treasury bonds, the newspaper said citing analysts.
Chinese cities including Nanjing and Dongguan moved to relax home purchase limits on families with multiple children to buy one more home, and more cities are expected to follow suit, the China Securities Journal reported. Some cities are providing preferential mortgage rates as low as first-time buyers for these families, while some cities are subsidising such buyers as high as CNY20,000 for a single household, the newspaper said. The property market is expected to gradually pick up with major cities such as Guangzhou, Shenzhou, Suzhou and Wuhan having strong market demand, the newspaper said.
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