MNI CHINA LIQUIDITY INDEX: Funds Ample, But Tighten Late May

--MNI May China Liquidity Conditions Index At 30.0 From 14.3 in Apr

     BEIJING (MNI) - Liquidity remained loose across China's interbank market in

the first 3 weeks of May, before tightening into month-end as increased bond

issuance and tax payments drained funds, the latest MNI Liquidity Conditions

Index shows.

     The Liquidity Condition Index climbed to 30.0 in May, up from 14.3 in April

and higher for a third straight month, with just over half of respondents seeing

53.3% conditions looser over the month.

     The higher the index reading, the tighter liquidity appears to survey

participants. Traders MNI interviewed mid-month certainly saw liquidity as

looser than interviews recorded later in the survey period.

     To help smooth liquidity, the People's Bank of China injected CNY 100

billion via 7-day reverse repo on May 26 -- the day following the close of the

MNI survey -- after 37 straight days on the sidelines.

     --ECONOMY IMPROVING

     The Economy Condition Index rose to 73.3 in May, edging higher from April's

64.3, hitting the highest level since the outbreak of the Covid-19 pandemic.

     "Economic indicators are showing improvements, although retail sales and

investment are negative," a fund manager based in Nanjing told MNI.

     --"PRUDENT BUT MORE FLEXIBLE"

     The PBOC Policy Bias Index stood at 33.3, little changed from 32.1 in

April, with 66.7% of the traders thinking policymakers are sticking with the

"prudent" stance, with the balance all seeing policy easing in the period ahead.

     China's Premier Li Keqiang told the recent National People's Congress China

should "pursue a prudent monetary policy" but could act "in a more flexible and

appropriate way".

     "With the guidance form the central government, we believe bailout policies

such as supporting the SMEs will be introduced more this year," a Fujian based

senior trader said.

     The Guidance Clarity Index stood at 70.0 in May, compared with 71.4 seen in

April, with more than half of the traders surveyed seeing clear and transparent

direction from the central bank.

     --CURVE LITTLE CHANGED

     The 7-Day Repo Rate Index FELL slightly to 53.3 in May from April's 53.6,

with half of the traders predicting the curve will run at current level.

     "Rates won't fluctuate much as there won't be significant change IN

policies or big events" the Fujian manager told MNI. The 7-day weighted average

interbank repo rate for depository institutions (DR007) closed at 1.8590%

Tuesday.

     The 10Y CGB Yield Index in May fell to 36.7 from 39.3 in last month,

marking a fifth straight monthly drop.

     One Beijing based trader, pessimistic on the outlook for the economy, sees

now near-term upside pressure on long end yields.

     The MNI survey collected the opinions of 15 traders with financial

institutions operating in China's interbank market, the country's main platform

for trading fixed-income and currency instruments, and the main funding source

for financial institutions. Interviews were conducted May 11- May 25.

--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email: flora.guo@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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