MNI China Daily Summary: Tuesday, July 19

POLICY: The People’s Bank of China (PBOC) is on hold for policy rate cuts on excessive stimulus concerns as it instead moves to guide deposit rates down to make it possible for banks to offer lower cost loans, policy advisors and market analysts said, predicting the Loan Prime Rate would remain unchanged this month.

LIQUIDITY: The PBOC injected CNY7 billion via 7-day reverse repos with the rate unchanged at 2.1%. This led to a net injection of CNY4 billion after offsetting the maturing CNY3 billion reverse 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) decreased to 1.5482 from the close of 1.5967% on Monday, Wind Information showed. The overnight repo average rose to 1.2498% from the previous 1.2224%.

YUAN: The currency strengthened to 6.7438 against the dollar from Monday's close of 6.7446. The PBOC set the dollar-yuan central parity rate higher at 6.7451, compared with 6.7447 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7855%, up from Monday's close of 2.7805%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.04% to 3,279.43, while the CSI300 index fell 0.54% to 4,269.34. The Hong Kong's Hang Seng Index lost 0.89% to 20,661.06.

FROM THE PRESS: The Chinese economy is expected to gradually return to its potential growth level of about 5% and 5.5% in Q3 and Q4, respectively, which may bring the annual growth to 4.1% to 4.5%, the Securities Daily reported citing Wang Qing, chief macro analyst of Golden Credit Rating. Boosting consumption should be a key to drive growth in H2, including the promotion of car and home appliance sales, as well as the issuance of consumer coupons and subsidies to the low-income groups, Wang was cited as saying. Retail sales may rebound to around 4.5% y/y by year-end from the 0.7% decline in H1, the newspaper said citing Wang.

China should strengthen the coordination of fiscal and monetary policy to better support enterprises and help stabilise employment, Guan Tao, a former official and now chief economist at BOC Securities wrote in a blog post. China can learn from the practice of the U.S. and the UK to rescue enterprises by providing liquidity support and improving companies’ solvency to help them repair their balance sheets, said Guan. The central bank can also launch new structural tools to support the key areas and weak links of the economy, Guan added.

Countries in Asia can cooperate in coordinating the pace of monetary policies to ensure economic and financial stability in the region, rather than simply following the U.S. Fed rate hikes, the 21st Century Business Herald reported citing Zong Liang, chief researcher of Bank of China Research Institute. Countries may rely on capital controls and adjusting the settlement currency to weaken the extensive link with the U.S. dollar, Zong added.