MNI CHINA LIQUIDITY INDEX: PBOC Keeps Funds Flowing Thru April

--MNI Apr China Liquidity Conditions Index 14.3 From 10.0 in Mar

     BEIJING (MNI) - There was no shortage of liquidity in China's interbank

market through April, as the People's Bank of China ensured the continued

availability of funds for the real economy through reserve ratio requirement

cuts, lower interest rates and market operations, the latest MNI Liquidity

Conditions Index shows

     --The Liquidity Condition Index stood at 14.3 in April, edging up from the

10.0 recorded last month and the record low 0.0 seen in February. The lower the

index reading, the looser liquidity appears to survey participants.

     To boost liquidity, along with the announced RRR cuts, the PBOC central

bank lowered its 1-year Medium-term Lending Facility (MLF) rate by 20 bps on Apr

15, before cutting the 1-year Loan Prime Rate (LPR) and Targeted Medium-term

Lending Facility (TMLF) rate both by 20 bps five days later. The LPR cut is the

biggest reduction since the mechanism was reformed last August and TMLF cut was

the first time since its launch in December 2018.

     --The Economy Condition Index was little changed from the March level, down

just 2.4 points at 64.3, with more than three-quarters of respondents seeing a

pick-up from the previous month. However, just over 20% of respondents still

feared a downturn in Q2 as global demand slowed.

     "Although glad to see the economy improving, there remains a possibility it

might turn lower in the second quarter due the slump in external demand," a

senior trading manager based in costal Fujian Province said.

     --The PBOC Policy Bias Index rose to 32.1 from 23.4 in March, with the

central bank's policy seen by some moving from extremely loose to 'prudent',

albeit with flexible tools available to the central bank.

     --The Guidance Clarity Index rose to 71.4 in April, up from 60.0 in March,

with the central bank seen giving clear indication of its intentions.

     "Frequent press conferences and clear and timely announcements are a huge

improvement -- the market gets clear signals and guidance," one trader said

     --The 7-Day Repo Rate Index slid to 53.6 in April from March's 66.7, lowest

in three months, with half of the traders predicting the curve will be little

changed in coming months. The 7-day weighted average interbank repo rate for

depository institutions (DR007) closed at 1.3807% Tuesday.

     "Rates won't fluctuate much in short term as some CNY1.5 trillion local

government bond issuance will also need a relative stable environment" the

Fujian manager told MNI.

     --The 10Y CGB Yield Index fell again, touching a nine-month low of 39.3

from 46.7 in March.

     "Yields usually go down after the cut of the excess reserve ratio, thus we

would say the yield won't rise for a while," a Beijing based trader said.

     The MNI survey collected the opinions of 14 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 between April 13 and April

24.

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

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