MNI China Daily Summary: Wednesday, Dec 20

EXCLUSIVE: China’s benchmark lending rate will likely fall in 2024 following the central bank’s cut to key policy rates, but any reduction will be moderate and its impact on the economy low as credit demand remains weak, economists and analysts told MNI.

EXCLUSIVE: China’s interbank market liquidity continued to ease in December as The People’s Bank of China made the largest MLF injection on record in anticipation of significant government bond issuance and peak season demand, while traders expected more PBOC reserve and rate cuts in the near term to firm up 2024 growth, the latest MNI Liquidity Conditions Index showed.

POLICY: China's Loan Prime Rate remained unchanged on Wednesday according to a People's Bank of China statement, in line with market expectation following the PBOC's decision to keep a key policy rate steady on Dec 15.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY134 billion via 7-day reverse repo and CNY151 billion via 14-day on Wednesday, with the rates unchanged at 1.80% and 1.95%, respectively. The reverse repo operation has led to a net injection of CNY20 billion reverse repos after offsetting CNY265 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.8046% from 1.7660%, Wind Information showed. The overnight repo average increased to 1.5792% from 1.5655%.

YUAN: The currency strengthened to 7.1336 to the dollar from 7.1435 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.0966, compared with 7.0982 set on Tuesday. The fixing was estimated at 7.1314 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6525%, up from Tuesday's close of 2.6500%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 1.03% to 2,902.11 while the CSI300 index fell 1.10% to 3,297.50. The Hang Seng Index increased 0.66 at 16,613.81.

FROM THE PRESS: China’s CPI will moderately recover next year as base effects weaken and demand increases during peak consumption season around New Year’s Day and Spring Festival, according to Li Chao, spokesperson at the National Development and Reform Commission. Li said pork prices could continue their current upward trend and the NDRC would ensure smooth supply of food products during peak season. On domestic demand, Li noted industrial companies have maintained positive profit growth for three consecutive months which would boost workers' income and enhance momentum. (Source: Yicai)

China should promote the appreciation of the yuan in the long run and keep the currency stable, as excessive depreciation would increase the cost of imports and hurt exports, given that a considerable proportion of China's exports are supported by imports, said Han Yongwen, vice chairman at the China Center for International Economic Exchanges. Meanwhile, to stabilise market expectations, it is also necessary to promote the rebound of the stock market value via institutional reforms, stabilise foreign investment growth and guarantee the delivery of unfinished housing projects, said Han. (Source: 21st Century Business Herald)

While some small- and medium-sized banks raised deposit rates at year-end to attract depositors and prepare for the credit peak early next year, this will likely not change the overall downward trend, National Business Day reported citing analysts. Some joint-stock banks and city commercial banks see inverted rates of three-year and five-year deposits after an average 4.3 bp m/m rise in three-year products in November. An unnamed researcher from a major bank said the deposit interest rates will likely fall further next year with the decline of the benchmark Loan Prime Rate. The average interest rates of two-, three-, and five-year deposits in November dropped by 27, 39.5, and 43.5 bp in November, compared with end-2022, data by Rong360 Digital Technology Institute showed.