MNI China Daily Summary: Tuesday, July 18

PREVIEW: China’s reference lending rate will likely remain unchanged in July, however, the central bank could cut the reserve requirement ratio in H2 thanks to poor Q2 economic performance and increasing medium-term lending facility maturities, economists told MNI. The Loan Prime Rate (LPR) – based on the People’s Bank of China’s MLF rate and quotes submitted by 18 banks – will likely remain steady at 3.55% for the one-year maturity and 4.2% for the five-year plus tenor on Thursday, they said.

POLICY: China could see a recovery in pork prices towards year end as demand increases as the weather cools and students return to school, Li Hui, a spokesperson for the National Development and Reform Commission (NDRC) said. Last week policymakers saw continued low CPI, with June's print flat y/y, with analysts citing weak pork prices as a contributing factor.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY15 billion via 7-day reverse repos with the rates at 1.90%. The operation has led to a net injection of CNY13 billion after offsetting the maturity of CNY2 billion reverse repo today, according to Wind Information. The operation aims to keep banking system 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 1.8912% from 1.8529%, Wind Information showed. The overnight repo average rose to 1.5404% from 1.3021%.

YUAN: The currency weakened to 7.1717 against the dollar from 7.1702 on Monday. The PBOC set the dollar-yuan central parity rate higher at 7.1453, compared with 7.1326 set on Monday. The fixing was estimated at 7.1653 by BBG survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6875%, down from Monday's close of 2.6975%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.37% to 3,197.82, while the CSI300 fell 0.32% to 3,854.94. The Hang Seng Index tumbled 2.05% to 19,015.72.

FROM THE PRESS: Policymakers will focus on high-quality growth and promote stable economic development in China, according to the Chinese People's Political Consultative Conference (CPPC). At a recent H1 macroeconomic symposium attended by CPPC Chairman Wang Huning, leaders said China will achieve economic goals in a high-quality fashion, and noted the economy was steadily improving with market demand recovering. Looking forward, China will focus on stabilising growth, ensuring livelihoods and preventing risks. (Source: Yicai)

The PBOC will likely cut the reserve requirement ratio across the broad in Q3 and continue to roll over maturing medium-term lending facilities with increased amounts, said Yan Jun, analyst at Golden Credit Rating International. Both operations can supplement medium- and long-term liquidity, while an RRR cut would send a more obvious signal to stabilise growth while reducing the cost of bank funds, said Yan. China’s benchmark Loan Prime Rate will likely remain steady in July, as the PBOC left the MLF rate unchanged on Monday, said Wen Bin, chief economist of Minsheng Bank. The LPR will release on Thursday. (Source: Securities Daily)

Some Indian refiners have begun to use yuan for settlement of crude oil imported from Russia, as India’s imports of Russian oil hit a record high in June. The Central Bank of Argentina allowed opening CNY accounts in its financial institutions and used CNY to repay its foreign debt for the first time last month. Authorities must increase the confidence of China's economy globally and promote demand for Chinese goods if the aim is to make the yuan a reserve currency, said Tian Lihui, dean at the Institute of Finance & Development at the Nankai University. According to data from S&P Global Ratings, the proportion of yuan in global cross-border trade settlements rose to 3.2% in May from 2.1% at the beginning of this year. (Source: Securities Daily)