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MNI CHINA LIQUIDITY INDEX: Liquidity Drained, Economy Slower

MNI Aug China Liquidity Conditions Index 53.1 Vs 34.4 Jul

MNI (Singapore)
(MNI) London

Liquidity conditions across China’s interbank market tightened modestly in August, as the People’s Bank of China looked to balance boosting the economy and avoiding excess liquidity, the latest MNI Liquidity Conditions Index shows.

The Liquidity Condition Index rose to 53.1 in August from 34.4 previously, with 28.1% of the participants reporting a marginal tightening in liquidity condition.

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

“Scheduled bond issuance slowed in August, which had a lighter pressure on the liquidity,” a Shandong based trader told MNI.

“The PBOC is still working to balance medium-and-long term funds,” a senior trader with a state-owned bank in Beijing commented, as the central bank continued to control liquidity.

The People’s Bank of China conducted CNY400 billion MLF in August, draining CNY200 billion after offsetting CNY600 billion maturities. The central bank drained a net CNY6 billion via its open market operations as of August 30, MNI calculated.


The Economy Condition Index fell to 40.6 in August, down sharply from July’s 73.4, with traders concerns over the economic outlook picking up.

“Rising global inflationary pressure, a pick-up in domestic Covid cases and adverse weather in southern China” were all weighing on sentiment, Fu Linghui, the spokesman of National Bureau Statistics said recently.

China’s industrial output rose 3.8% y/y in July, slower than the 3.9% seen last month as July’s data disappointed across the board.


The PBOC Policy Bias Index edged up to 40.6 from 35.9 in July, with 68.8% of respondents seeing policy on hold while a further 25.0% expect a looser stance.

“The central bank is not in a hurry to tighten the policy stance as current recovery foundation is not solid enough,” a senior trader in Beijing commented.

The Guidance Clarity Index stood at 56.3 in August, down from 59.4 last month. The high level of the reading underlines the market’s continued satisfaction understanding the PBOC’s actions.


The 7-Day Repo Rate Index edged down to 45.3 from 51.6 reading, with rates expected to fall after month end. The 7-day weighted average interbank repo rate for depository institutions (DR007) closed at 1.6584% Tuesday.

The 10-year CGB Yield Index read at 59.4 in August, up from the previous 56.3 reading, with 37.5% predicting a rising yields in future three months.

The MNI survey collected the opinions of 32 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 August 15 – August 26.


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