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POLICY: Headline inflation in China is facing upward pressure even as overall weak demand erodes underlying prices, adding to challenges for monetary policy, according to analysts after the pace of increases in CPI unexpectedly broke 2%.
DATA: China's April consumer price index rose 2.1% y/y to hit a five-month high, accelerating from March and outshining a 1.8% forecast, due to Covid outbreaks and rising international commodity prices, data from the National Bureau of Statistics on Wednesday showed. The producer price index measuring factory gate prices further eased for the sixth month to 8.0% y/y from March's 8.3% y/y, but higher than the 7.8% forecast.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rates unchanged at 2.10%. The operation has led to a net injection of CNY10 billion as no reverse repos maturing 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) increased to 1.5581 from the close of 1.5366% on Tuesday, Wind Information showed. The overnight repo average rose to 1.3189% from the previous 1.3033%.
YUAN: The currency weakened to 6.7274 against the dollar from 6.7227 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.7290, compared with 6.7134 set on Tuesday.
BONDS: The yield on the 10-year China Government Bond was last at 2.8225%, up from Tuesday's close of 2.8075%, according to Wind Information.
STOCKS: The Shanghai Composite Index gained 0.75% at 3,058.70, while the CSI300 index rose 1.44% to 3,976.42. Hang Seng Index edged up 0.97% to 19,824.57.
FROM THE PRESS: China’s top securities regulator will focus on stabilizing market expectations, capital flows and market behaviour to smoothen A share market operations, Xinhua News Agency reported, citing Wang Jianjun, vice chairman of the China Securities Regulatory Commission. The CSRC will encourage listed companies to repurchase shares, increase holdings by major shareholders, boost dividends and support resumption of work and production amid Covid outbreaks, Xinhua cited Wang as saying. Though there was a net outflow of foreign capital in the trading of Shanghai and Shenzhen Stock Connect in March, but it turned into a net inflow in April, Wang said. He noted long-term funds have maintained a net inflow so far this year, indicating foreign investors' optimism about the long-term investment value of A shares.
China’s macro leverage, or debt-to-GDP ratio rose by 4.4 percentage points to 268.2% in Q1 from the previous quarter, as debt growth recovers while economic growth is at a low level, Yicai.com reported citing a report by the National Institution for Finance & Development. The main driver was the sharp increase in the leverage ratio of non-financial enterprises, reflecting easier credit supply, the report said. The macro leverage ratio may rise by more than 10 pps in 2022 should the annual GDP fail to reach 5%, the report said. This compares to 2021 when the ratio dropped by 6.3 pps amid a steady economic recovery with the epidemic under control, Yicai said.
Large banks in China are expected to lower provision coverage ratios to release more funds to support the real economy, the Economic Information Daily reported citing analysts. Funds released can be used to increase write-offs of non-performing loans and boost credit supply, the newspaper said citing Ming Ming, chief economist of CITIC Securities. Ten listed banks have already cut the ratio in Q1, with China Merchants Bank making the largest cut by 21.19 percentage points to 462.68%, the newspaper said.
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