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POLICY: China's monetary policy should remain stable with a tilt to looser in the second half of the year, moderately cutting interest rates, so to take precautions against a possible economic slowdown and U.S. rate hikes, wrote Sheng Songcheng, a former director of the People's Bank of China's statistics department in a blog post. A reasonable and moderate interest rate cut would help reserve future policy room for future interest rate hikes when the Federal Reserve tightens its monetary policy, said Sheng.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Wednesday. The operation resulted in a net drain of CNY90 billion given the maturity of CNY30 billion reverse repos and CNY70 billion of treasury cash deposits at commercial banks 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 2.1150% from the close of 2.0263% on Tuesday, Wind Information showed. The overnight repo average rose to 2.0515% from the previous 1.9052%.

YUAN: The currency weakened to 6.4639 against the dollar from 6.4627 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.4762, compared with the 6.4613 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.0820%, down from Tuesday's close of 3.1075%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.66% at 3,553.72, while the CSI300 index rallied 1.13% to 5,140.49. Hang Seng Index lost 0.40% to 27,960.62.

FROM THE PRESS: The yuan is likely to maintain a two-way fluctuation and market participants should not bet on a prolonged one-way decline, the Economic Daily said in a commentary. China will likely maintain its support policies, including an appropriate monetary environment, as its economic recovery is unbalanced, the global pandemic outlook remains uncertain and the domestic inflation is moderate and controllable, the newspaper said. Yuan assets, including stocks and bonds, continue to attract foreign holdings with large growth potential, the newspaper said. The dollar's appreciation may also be constrained, helping keep China-U.S. rate spread stable, as the Federal Reserve will slow its policy normalization to prevent bursting asset bubbles, the daily said.

China will focus on establishing a modern central bank, improve the financial supervision system and deepen the reform of financial institutions in the next step, the 21st Century Business Herald reported citing a statement by the Financial Stability and Development Committee under the State Council. A modern central bank system pays more attention to the use of cost-sensitive regulations, price stability, communication with the public as well as keeping the independence of monetary policy, the newspaper said. Improving base currency injection mechanism and market-based interest rates are two main themes in building up a modern central bank, the newspaper cited Zhang Chengsi, professor of Renmin University.

Premier Li Keqiang's video conference with UK business leaders on Tuesday, the first formal bilateral business communication this year, will help the UK expand ties with China to cushion its withdrawal from the EU and elevate UK's global influence, the state-run Global Times said. While Britain will follow the U.S. to make things difficult for China, relations between China and the UK could become more "balanced and mature," as the Boris Johnson government will balance between political dependency on Washington and economic relations with Beijing, and may seek to lift relations with China, the newspaper said. Premier Li urged the UK to provide a fair business environment for Chinese firms investing in the UK, at a time when Chinese semiconductor company Nexperia awaits the UK's approval for its acquisition of UK's largest chipmaker Newport Wafer Fab (NWF). the Times reported.

MNI London Bureau | +44 203-586-2225 |