MNI CHINA LIQUIDITY INDEX: Liquidity Conditions Ease In April

Liquidity conditions across China’s interbank markets eased in April, boosted by the central bank cutting banks’ reserve requirement ratio in order to boost a slowing economy, the latest MNI Liquidity Condition Index shows.

The Liquidity Condition Index stood at 30.0 in April, easing from 63.3 in March, with 40.0% of traders reporting an improvement in conditions. The higher the index reading, the tighter liquidity appears to survey participants.

“The (People’s Bank of China’s) reserve requirement ratio cut, though smaller than the market expectation, was a bailout measure on the back of the current economy,” a senior trader based in Fujian said.

The PBOC announced a 0.25% RRR cut effective Apr. 25, releasing CNY530 billion of longer-term capital into the market to help support medium and small sized enterprises through covid restrictions.

The People’s Bank of China conducted CNY150 billion MLF in April, injecting CNY50 billion into the market after offsetting the CNY100 billion maturity. PBOC drained net CNY140 billion via its open market operation as of Apr 26, MNI calculated.

NEW ROUND OF LOCKDOWN

The Economy Condition Index recovered to 26.7 in April from 21.7, with 13.3% of the participants believing China’s economy performed well in Q1, although 60.0% were still concerned over the impact from omicron.

“China’s economy performed well in Q1 but will still have to face huge downward pressures,” one trader responded, noting that growth will be restricted by covid developments.

“Investment will become a support to stable development of the economy. Infrastructure investments will be expanded to help boost demand,” a Beijing trader said.

China's GDP rose 4.8% y/y in Q1, with industrial output rising 5.0% y/y in March and investment growing 9.3% y/y in the first three months. Retail sales fell 3.5% y/y in March.

POLICY ON HOLD

The PBOC Policy Bias Index edged up to 45.0 in April, after 43.3 in March, with 90.0% of participants seeing current policy on hold.

The Guidance Clarity Index stood at 53.3 in April, slightly down from the previous 56.7, with 93.3% traders reporting that the central bank is conveying a clear message to the market.

RATES DIVERGE

The 7-Day Repo Rate Index edged up to 53.3 from 43.3 reading, with rates expected to rise towards the end of month.

The 7-day weighted average interbank repo rate for depository institutions (DR007) closed at 1.6111% Tuesday.

The 10-year CGB Yield Index stood at 53.3 in April, down from the previous 66.7 reading, with 53.3% of respondents seeing the yield will fluctuate reasonably in its current range and 26.7% predicting higher yields.

The MNI survey collected the opinions of 30 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 Apr 11 – Apr 22.