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LPR: China’s reference lending rate remained unchanged on Wednesday, according to a statement on the People's Bank of China (PBOC) website, which was in line with market expectations after the central bank maintained a key policy rate last week. The Loan Prime Rate, based on the rate of PBOC’s Medium-term Lending Facility and quotes submitted by 18 banks, remains at 3.70% for the one-year maturity and 4.45% for five years.
POLICY: China’s reference lending rate may see a cut in the five-year tenor later this year but conditions are cautious now as bank interest margins narrow, and rising inflation and accelerating economic recovery keeps policy in check, market analysts said.
LIQUIDITY: The PBOC injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY3 billion 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) rose to 1.5677 from the close of 1.5482% on Tuesday, Wind Information showed. The overnight repo average increased to 1.2709% from the previous 1.2498%.
YUAN: The currency weakened to 6.7530 against the dollar from 6.7438 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.7465 on Wednesday, compared with 6.7451 set on Tuesday.
BONDS: The yield on the 10-year China Government Bond was last at 2.7660%, down from Tuesday's close of 2.7855%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged up 0.77% at 3,304.72, while the CSI300 index gained 0.34% to 4,283.80. Hang Seng Index rallied 1.11% to 20,890.22.
FROM THE PRESS: China should deepen exchange rate marketization reforms and accelerate the development of the onshore FX market to increase the flexibility of the yuan and reduce the dependence on quantitative policy intervention, Guan Tao, a former FX official and now the chief economist of BOC Securities wrote in an article published on the official China Forex magazine. China should expand trading entities, enrich trading products and relax trading restrictions to develop the FX market, and continuously improve the market adaptability of yuan internationalization, said Guan.
China’s declining holdings of U.S. Treasury bonds are a precautionary measure to deal with the expected adjustments of cross-border U.S. dollar liquidity following the Fed rate hikes, not a move to de-dollarize, said Yicai.com in an editorial. In the past six months to May this year, China has reduced U.S. Treasury holdings by over USD100 billion, which is the first time since May 2010 that the holdings have fallen below USD1 trillion, the newspaper said. U.S. Treasuries act as risk-averse assets and accounted for 32% of China’s foreign exchange reserves by end-June, and there is a need to increase the portfolio of profitable assets, the newspaper said.
Chinese companies’ overseas listing activities have gradually normalised, with 23 U.S.-listed Chinese companies successfully shifting to Hong Kong for secondary listings to cope with the delisting risk, Yicai.com reported. There are 251 Chinese companies listed in the U.S., mainly technology and consumer firms, with a total market value of USD1.71 trillion. And 42 of them meet the requirements of secondary listing in Hong Kong, accounting for 46% of the total market value, the newspaper said. While many companies are still lining up for Hong Kong, Europe has also become a popular option for going public, as audit requirements in Switzerland are less stringent than in the U.S., the newspaper said.
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