MNI China Daily Summary: Wednesday, May 7

POLICY: The People’s Bank of China (PBOC) will cut its seven-day reverse repurchase operation rate by 10 basis points, Governor Pan Gongsheng told reporters in a briefing. The key policy rate will be reduced to 1.4% from 1.5%, the first cut since the PBOC reduced the rate 20 bps on Sept 27, 2024. The move will guide down the loan prime rate by 10bp, Pan said.

POLICY: The PBOC will cut banks’ reserve requirement ratio by 50 bps, Governor Pan told a press conference. The first RRR cut this year, following two cuts by a total 100 bps in 2024, is expected to release a total CNY1 trillion of long-term funds, Pan said.

POLICY: The PBOC will cut the interest rate of its targeted tools to boost support for key sectors, Governor Pan told reporters. The Bank will reduce rates of its relending facilities by 25 basis points to 1.5% from 1.75% and ease the interest rate of pledged supplementary lending, a relending tool for policy banks, by 25bp to 2%, Pan said. 

POLICY: China will cut the loan rates of the individual housing provident fund by 0.25 percentage points, in a bid to support home purchase demand and stabilise the property market, Governor Pan told reporters.

POLICY: Chinese authorities will enhance stock market support via increasing liquidity and easing regulations, officials told reporters in a briefing.

LIQUIDITY: The PBOC conducted CNY195.5 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY335.3 billion after offsetting the maturities of CNY530.8 billion reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6802% from 1.7272%, Wind Information showed. The overnight repo average decreased to 1.6622% from 1.7095%.

YUAN: The currency weakened to 7.2254 to the dollar from 7.2169 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.2005, compared with 7.2008 set on Tuesday. The fixing was estimated at 7.2147 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6360%, up from Tuesday's close of 1.6250%, according to Wind Information.

STOCKS: The Shanghai Composite Index was up 0.80% to 3,342.67, while the CSI300 index rose 0.61% to 3,831.63. The Hang Seng Index edged up 0.13% at 22,691.88.

FROM THE PRESS: China's Vice Premier He Lifeng will act as chief trade negotiator when talks begin with U.S. Treasury Secretary Scott Bessent during his visit to Switzerland over May 9-12, according to a statement on the Ministry of Commerce website Wednesday. The ministry stressed the importance of mutual respect and benefit during the negotiation, noting Beijing would not sacrifice fairness and justice to reach agreement.

China will adopt more proactive macroeconomic policies and is confident of achieving its economic growth target of around 5% for 2025, said Finance Minister Lan Fo’an during the 58th Annual Meeting of the Board of Governors of the Asian Development Bank. China will continue to build a unified domestic market, expand high-level opening-up and share China's development opportunities, and dividends with the world, especially Asia-Pacific countries, said Lan. (Source: Securities Times)

Analysts expect looser market liquidity in May, as authorities step up efforts to expand domestic demand, which will fully offset softer liquidity as government bond issuance peaks, Securities Daily reported. The People’s Bank of China will likely cut the reserve requirement ratio by 0.5 percentage points this month, releasing about CNY1 trillion of long-term liquidity, along with an interest rate cut of 0.3 percentage points to drive down rates of corporate and household borrowing, the newspaper said citing Wang Qing, analyst with Golden Credit Rating.