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LIQUIDITY: Liquidity across China’s interbank market withstood early year volatility and an improved economic outlook, according to the latest MNI Liquidity Conditions Index. The Liquidity Condition Index slid to 33.9 in January -- for the first time in two years liquidity was looser in the first month of the year compared to the previous December. Half of the traders surveyed saw condition as “better” due the latest injections from the central bank.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY200 billion via 14-day reverse repos with the rate unchanged at 2.25% on Wednesday. The operation has led to a net injection of CNY100 billion after offsetting the maturity of CNY100 billion repos today, according to Wind Information. The operation aims to keep liquidity stable before the Spring Festival, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.0131% from the close of 1.9918% on Tuesday, Wind Information showed. The overnight repo average fell to 1.7225% from the previous 1.9204%.
YUAN: The currency strengthened to 6.3219 against the dollar from 6.3252 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.3246, compared with 6.3418 set on Tuesday, marking the biggest daily rise since Dec 21, 2021.
BONDS: The yield on the 10-year China Government Bond was last at 2.7125%, up from Tuesday's close of 2.6975%, according to Wind Information.
STOCKS: The Shanghai Composite Index gained 0.66% at 3,455.67, while the CSI300 index rose 0.72% to 4,712.31. Hang Seng Index edged up 0.19% to 24,289.90.
FROM THE PRESS: The Chinese yuan may face periodic depreciation pressure when domestic companies' strong seasonal demand for forex settlement eases, the Shanghai Securities News reported citing analysts. The yuan may remain strong against the U.S. dollar in Q1, as the market has already priced in China’s rate cut and U.S.’s expected rate hike, the newspaper said citing Wang Dan, the chief economist at Hang Seng China. The PBOC may increase counter-cyclical tools around the Spring Festival in February should the yuan still appreciates excessively after FX settlement demand is fully met, the newspaper said citing CIB Research. On Tuesday, the onshore yuan once strengthened to as high as 6.3235 against the dollar, hitting a new high since April 2018, the newspaper added.
China's economy can grow 5.5% in 2022, and policymakers could set a higher economic growth target as long as inflation and systemic financial risks are under control, wrote Yu Yongding, a former member of PBOC’s monetary policy committee at a blog post run by China Finance 40 Forum. Boosting growth relies on infrastructure investment given the continuing economic downturn and weak expectations, so as to further drive manufacturing investment and lift consumption, said Yu. China should consider expanding the issuance of treasury bonds to raise funds for infrastructure projects, as local governments are short of funds to undertake investment tasks, said Yu.
Local governments in China are trying to raise consumption by promoting purchases of new energy vehicles and smart home appliance sales in the countryside, the Securities Times reported. Most local governments showed cautious expectations towards consumer spending by maintaining or even lowering annual targets of retail sales growth from last year given to severe employment situation, high inflation pressure and insufficient consumer confidence amid epidemic uncertainty and income pressure, the newspaper said.
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