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BEIJING: China’s yuan edged up against the dollar on Monday, after Shanghai declared victory against COVID-19 over the weekend, but gains were limited ahead of more convincing signs of a recovery.

Shanghai, the country’s commercial hub, will gradually resume dining-in in restaurants from June 29 after the city’s Communist Party chief declared victory in the battle against the latest wave of COVID shocks that put the city under lockdown for two months.

Prior to market opening, the People’s Bank of China set the midpoint rate at a more than two-week high of 6.6850 per dollar, 150 pips or 0.22 percent firmer than the previous fixing of 6.7.

In the spot market, the onshore yuan opened at 6.6890 per dollar and was changing hands at 6.6876 at midday, 22 pips firmer than the previous late session close.

China’s May industrial profits slump

Profits at China’s industrial firms shrank at a slower pace in May following a sharp fall in April, as activity in major manufacturing hubs resumed, but COVID-19 restrictions still weighed on factory production and squeezed factory margins.

Profits fell 6.5 percent from a year earlier, less than the 8.5 percent decline in April, according to data released by the National Bureau of Statistics on Monday.

May’s improvement was driven by surging profits in the coal mining and oil and gas extraction sectors, as the Russia-Ukraine war sparked a rally in global commodity prices.

However, profits in the manufacturing sector dropped 18.5 percent in May as equipment manufacturing improved significantly, Zhu Hong, senior NBS statistician, said in a statement. 

April profits were down a sharper 22.4 percent.

The gap between profit margins of upstream and downstream sectors narrowed in May, analysts at Goldman Sachs said in a note, adding the divergence of profits across various sectors and firms remained significant.

PBOC makes biggest daily cash injection

China’s central bank made the biggest daily cash injection into the banking system via open market operations in nearly three months on Monday, to ease pressure from rising cash demand toward the end of the first half of the year.

The People’s Bank of China injected 100 billion yuan ($14.95 billion) worth of seven-day reverse repos, the biggest daily injection via the liquidity tool since March 31.

The central bank said the operation was to keep “half year-end liquidity stable,” according to an online statement.

The PBOC started pumping more cash into the financial system last Friday. Demand usually surges toward the end of the quarter, when commercial banks also have to shore up cash positions for an administrative quarterly health check by the central bank. 

With 10 billion yuan worth of such reverse repos due on Monday, the PBOC net injected 90 billion yuan on the day.

(With inputs from Reuters)