MNI CHINA LIQUIDITY SURVEY: Conditions Seen Tighter In Feb

--Nearly Half Of Respondents See Liquidity Conditions Tighter

--Sharp Fall In Respondents Seeing PBOC Bias As Easing

     BEIJING (MNI) - Late February saw a tightening of liquidity, with concerns

growing the People's Bank of China could further remove easy money and market

rates have already bottomed, the latest MNI China Interbank Liquidity Survey

showed.

     Almost half of respondents, 46.7%, saw a deterioration in liquidity

conditions over the month, compared to January when the survey was unanimous in

seeing conditions unchanged or better.

     "Tighter liquidity is mainly due to tax payment cash demands for the month

and the central bank has drained liquidity for most days this month," one bank

trader told MNI. 

     Other traders pointed to the sharp stock market rally in February as

another reason for the drain, as it had sucked up some excess liquidity. 

     Traders diverged in the outlook for the sustainability of the PBOC's

current easing stance, although 12 out of 15 still saw the current policy

position as loosening.

     --POSSIBLE TIGHTNESS

     The PBOC withdrew a net of CNY863.5 billion (including treasury cash

deposit at commercial banks) via its open market operations in February, with

20% of traders seeing this as a policy tightening move. No respondents saw

tighter conditions in January

     "The policy is tighter now, and that will continue in the second half of

the year since the money market rates have kept falling, even lower than those

in 2016 on some days," a city commercial bank trader said.

     With deleveraging and risk prevention still a concern for the authorities,

some traders noted the PBOC would soon adjust its policy to a more neutral

stance as the economy is expected to bottom out as early as in the second

quarter.

     --RATES TRAJECTORY

     A majority of traders see upside room for the seven-day repo, with 53.3% of

survey respondents seeing the rate higher over the next two weeks, although

below the 56.3% who foresaw higher repo rates in the previous survey.

     Money market rates are lower through February to date. The volume-weighted

average rate of the benchmark 7-day repo traded in the interbank market,

considered the best indicator of general liquidity, averaged 2.3654% by Feb 25,

below the average 2.5064% seen in January.

     "The 7-day repo rate will remain stable next two weeks as the 'two

sessions' (political gatherings) kick off, and the market rate has been close to

the bottom as the PBOC's latest Monetary Policy Report seems to suggest it is

satisfied with the current level," another trader responded.

     --IMPROVED OUTLOOK

     The economic outlook appears improved, with 26.7% traders seeing the

economy picking up in coming months, the highest percentage since March 2017,

although nearly three-quarters saw no improvement in the near-term.

     The modest uptick in the economic outlook saw nearly half of respondents

forecasting higher 10-year China Government Bond yields over the next three

months, the highest number since Dec 2017 and up from 25% who saw higher yields

in January's poll.

     The survey gauged the opinions of 15 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 Feb 20 to Feb 26.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email: flora.guo@marketnews.com

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

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