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MNI CHINA LIQUIDITY SURVEY: Conditions Remains Tight in August

MNI (London)
--MNI China Liquidity Conditions Index Climbed To 65.4 From July's 64.3
     BEIJING (MNI) - The People's Bank of China kept a tight hold on interbank
liquidity conditions through August, according to the latest MNI liquidity
survey, although there was still an overall perception of looser central bank
     MNI's Liquidity Conditions Index inched higher to 65.4 in August after
settling at 64.3 in July, indicating moderately tighter conditions than in the
previous month. 
     Overall, 38.5% of respondents saw tighter conditions, below July's 57.1%,
but those seeing the situation unchanged rose to 53.8% from 14.3%. The higher
the index, the tighter liquidity appears to market participants.
     The PBOC Policy Bias Index slipped to 34.6 in August from 46.4 previously,
with almost 40% of respondents seeing some central bank loosening.
     "The (loose) external environment does not provide a solid backdrop for an
over-tight stance domestically and the current stance is what the central bank
would like to see," said a Nanjing based trader told MNI.
     One Shanghai fund manager believed policy needs to ease further, "to act in
concert with the new launch of the LPR." 
     The PBOC Guidance Clarity Index rose to 65.4, up from July's 60.7, with
more traders saying they were getting clear guidance from the central bank, with
one Guangzhou based trader noting better communication between banks and the
PBOC leading to a better understanding of policy.
     The Economy Condition Index plunged to a 12-month low 15.4 in August, after
39.3 in July. More than three-quarters of respondents expressed greater concern
for the economy in the wake a weak set of July data.
     "Economic indicators are really bad, meantime, the yuan's foreign exchange
rate is falling ... the economy is tough," the Shanghai fund manager said.
     There were some positive voices around, looking for fresh government action
to support the economy. "The government is supportive, thus the economy won't
get too bad," a Shandong based trader said.
     The 7-Day Repo Rate Index rose to 61.5 in August, much higher than July's
35.7, with almost half of the respondents agreeing that current rate is
"comfortable" and is likely to be maintained for now. 
     The 10Y CGB Yield Index jumped to 53.8 in August from 39.3 previously, a
four-month peak, with 46.2% of the respondents believing the yield will
fluctuate in a narrow range. Others point to higher rates, believing yields have
touched bottom.
     An additional question this month asked whether traders saw the
introduction of the new loan prime rate (LPR) as an outright moving ease by the
PBOC. The idea was rejected by 84.6% of respondents who didn't consider it a
central bank rate cut as the LPR rate will be decided by commercial banks by
adjusting weights.  
     The MNI survey collected the opinions of 13 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 from Aug 20 - Aug 26.
--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 |

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