MNI CHINA LIQUIDITY INDEX: Tighter On Holiday Squeeze
Liquidity conditions in China seen tighter ahead of the China New Year holidays.
Liquidity across China’s interbank market tightened in January, due to increased cash demands and bond issuance, as economic fundamentals proved resilient and the recovery gathered pace, the latest MNI Liquidity Conditions Index shows.
The higher the index reading, the tighter liquidity appears to survey participants.
The Liquidity Condition Index climbed to 65.3 in January, double the reading of 32.9 registered in December. As many as 47.2% of the participants reported liquidity tensions. Liquidity typically tightens in the month preceding the Chinese New Year holiday.
The People’s Bank of China conducted CNY779 billion MLF in January, injecting CNY79 billion into the market after offsetting the maturity of CNY700 billion MLF.
The Economy Condition Index jumped to 61.1, dramatically up from last 27.1, with 58.3% of traders encouraged by the quick recovery. This marks the highest reading in six months, showing a change in the pessimism caused by the epidemic.
China’s GDP grew 2.9% y/y in Q4, slower than 3.9% y/y growth registered in Q3. Retail sales fell 1.8% y/y, recovering from the previous 5.9% y/y drop.
Fixed asset investment increased 5.1% y/y, edging down from the previous 5.3% y/y gain.
The PBOC Policy Bias Index read 41.7, picking up from last 37.1, with 83.3% of the participants seeing the stance as not changing, while the other 16.7% of the participants expecting a looser policy.
“Monetary policy will extend its steady growth orientation in the short term as the Q1 economy is still facing downward pressure,” a senior Shanghai fund manager said.
The Guidance Clarity Index stood at 54.2, following the previous reading of 50.0. Traders all agreed with the signals conveyed by the central bank.
The 7-Day Repo Rate Index rose to 40.3 in January, up from the previous 18.6, with one third of participants seeing the rate curve climbing in the next two weeks.
The 7-day weighted average interbank repo rate for depository institutions (DR007) closed at 1.9840% Friday.
The 10-year CGB Yield Index stood at 44.1 in January, up from 25.1, with 36.1% traders predicting higher yields on the back of better economic expectations.
The MNI survey collected the opinions of 36 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 January 9 – January 20.