MNI China Daily Summary: Tuesday, July 20

EXCLUSIVE: Another cut in the reserve requirement ratio for banks is possible in the coming months, but the People's Bank of China remains cautious on lowering policy rates for now despite economic headwinds, advisors and economists told MNI.

LPR: China's central bank on Tuesday left its benchmark rate for loans unchanged for the 15th straight month even after a cut in the cash reserve requirement ratio for banks by 50 bps earlier this month. The Loan Prime Rate, guiding companies' cost of borrowing, remains at 3.85% for the one-year maturity and 4.65% for five years. Market participants were divided over the need for more easing including a lower LPR right after the RRR cut, as data last week allayed fears of a further slowdown in China's growth.

POLICY: China will strengthen the review of infrastructure projects funded by local government special bonds, especially not raising funds for real estate projects, said Xiang Zhongxin, deputy director of the Budget Department at the Ministry of Finance.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operation left liquidity unchanged given it netted off CNY10 billion 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 2.1729% from the close of 2.1468% on Monday, Wind Information showed. The overnight repo average rose to 2.1824% from the previous 2.1117%.

YUAN: The currency strengthened to 6.4800 against the dollar from Monday's close of 6.4835. The PBOC set the dollar-yuan central parity rate higher at 6.4855, compared with the 6.4700 set on Monday, marking the weakest parity since May 6, 2021.

BONDS: The yield on 10-year China Government Bonds was last at 2.9575%, down from Monday's close of 2.9750%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.07% to 3,536.79, while the CSI300 index decreased 0.09% to 5,108.99. The Hong Kong's Hang Seng Index lost 0.84% to 27,259.25.

FROM THE PRESS: Coal prices in China may not stabilize until August as supplies are expected to rise then, the Shanghai Securities News reported citing industry analysts. Regulatory policies will help major local coal mines to boost production capacities while imports are also projected to increase, the newspaper said citing a report by the China Electricity Council's CECI office. Some smaller thermal power plants cannot get supply due to the ongoing shortages, which the newspaper said were caused by record electricity consumption in many regions, the newspaper said. China has expanded its annual coal production capacity by 140 million tons per year in H1 and will add another 110 million tons in H2, while adding coal reserve storage capacities by about 600 million tons, about 15% of its annual consumption, the newspaper said citing the top planner NDRC.

China's housing prices may slow further in H2 as the market enters another phase of correction following policies that restrict credit lending, the China Securities Journal reported citing a research report by Tianfeng Securities. New home sales last week in 36 large cities slid 13.2% from a week ago, with the top-tier cities plunged 23.25%, the newspaper said citing the brokerage's data. Some developers reported double-digit drops in June sales from last year, the newspaper said. While regulatory efforts will continue to contain the housing industry, regional governments may support a stable market to help boost incomes as they grapple with slowing fiscal revenue growth, the newspaper said.

China needs the digital yuan, a new type of retail payment tool, to help drive its digital economy and achieve high-quality growth, the Securities Times said in a commentary on the recently released PBOC White Paper on digital currency. The digital yuan is safer to protect user privacy and could make basic financial services more efficient, the Times said. The launch of digital yuan will help withstand potential financial risks from cryptocurrencies such as Bitcoin, which could threaten international monetary system and cross-border capital flow management, the newspaper said.