MNI CHINA LIQUIDITY INDEX: Condition Ease On PBOC Injections

Condition in China's interbank eased in late October, soothed by the People's Bank of China's recent fund injections, the latest MNI Liquidity Conditions Index shows.

The Liquidity Condition Index eased to 35.7 in October, falling from September's 13-month peak of 79.6, with 57.1% of the traders reporting improved condition. The higher the index reading, the tighter liquidity appears to survey participants.

The People's Bank of China conducted CNY500 billion MLF in October to offset equivalent maturing OMO's, before injecting a net CNY190 billion into the interbank market as of Oct 26, MNI calculated.

"Tension was mainly eased by the central bank's capital injection, but financial expenditure this month also helped," a trader with commercial bank in Shandong told MNI.

SLOWDOWN

The Economy Condition Index bounced a little but was still at a depressed 7.1 in October, up from 5.6 last month.

"China's economy, though growing slower than expected, is still leading world economies … but we need to note well the anticipated slower growth in Q4," a Beijing based fund manager said, adding that fresh pandemic cases, have in part weighed on GDP.

China's GDP grew 4.9% y/y in the third quarter. Industrial output rose 3.1% y/y in September, after rising 5.3% y/y last month. Retail sales rose 4.4% y/y in September, although lacking dynamic growth due to recent outbreaks of Covid.

CONSISTENT POLICY

The PBOC Policy Bias Index came in at 44.6 in October, up slightly from September's from the 42.6, with 9 out of 10 participants saying current policy will be implemented well.

"Current prudent policy aimed at stabilizing the economy and smoothing between economic cycles will be kept stable and consistent," a senior trader with top bank in Beijing told MNI.

Yi Gang, the governor of the central bank wrote in an essay published on China Finance magazine that the PBOC will "continue to implement normalized monetary policy with moderate tightness, and the capital injections will provide sufficient support as needed,"

The Guidance Clarity Index stood at 57.1 in October, little changed from last month's 57.4, with 85.7% of the traders seeing clear signals or messaging from central bank's move.

RATES CLIMBING

The 7-Day Repo Rate Index rose to 82.1 from 79.6 reading, with 71.4% of participants seeing the rise curve steepen. The 7-day weighted average interbank repo rate for depository institutions (DR007) closed at 2.2454% Tuesday.

The 10-year CGB Yield Index was 76.8 in October, sharply up from the previous 35.2 reading, with almost two-thirds of respondents seeing yields continuing the recent upward trend to as high as 3.05% in future three months.

The MNI survey collected the opinions of 28 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 Oct 11 – Oct 22.