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--MNI Oct China Liquidity Conditions Index 66.7 From 57.1 Sept
     BEIJING (MNI) - Liquidity tightened in China's interbank market in October,
with tax payments and control of conditions by the People's Bank of China all
pressuring, the latest MNI China Liquidity Survey showed.
     MNI's Liquidity Conditions Index rose to 66.7 in October from 57.1 in
September, indicating moderately tighter conditions than in the previous month,
with 9-in-10 respondents reporting liquidity the same or tighter. The higher the
index, the tighter liquidity appears to market participants.
     "You can tell from higher overnight repo rates, along with October timing
regarding tax payments, that liquidity is getting tighter this month," a Nanjing
based trader told MNI.
     The PBOC Policy Bias Index edged up to 45.8 in October from September's
32.1 recorded in September, with three-quarters of replies seeing the PBOC
maintaining its current policy bias. The Clarity Index, effectively showing how
well the PBOC was communicating its position, fell to 58.3, with more than 80%
of responders seeing clear and effective messaging from the central bank.
     Open market operations are now used "precisely" to manage liquidity and
signals from the central bank are delivered smoothly and clearly, a city
commercial bank trader said.
     The Economy Condition Index rose for a second month to 29.2 in October,
after touching 21.4 in September, with a slightly higher 17% of replies saying
economic data was looking better. But overall, more than half of replies are
still concerned over the outlook.
     "Short term, (indicators) are okay, but it is not the case in longer-term,"
a Shanghai fund manager said.
     "The Economy is slowing down obviously, given property and infrastructure
investment are limited as well as the less drive from finance sector; I'm
pessimistic (on the outlook)," a southeast bank trader told MNI.
     There was divergence in the rate outlook, with a sharp fall in the 7-day
repo Index and a spike higher in the 10-year CGB yield Index as traders look for
a steeper curve ahead.
     "Long-end yields may go up first. The gloomy economy doesn't yet provide an
environment for looser policy, and secondly, the treasury yields might rise
after falling for almost a year," a Shandong-based trader said.
     An additional question to this month's survey was whether traders think
PBOC will further ease its policy. The idea was rejected by 58.3% of respondents
who see the central bank sticking to its current policy, with the package of
tools, including open market operations and Loan Prime Rate (LPR) seen as
effective and flexible. The PBOC also needs to consider inflationary and
depreciation pressures as well before any policy adjustment.
     The MNI survey collected the opinions of 12 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 Oct 21 - Oct 28.
--MNI London Bureau; tel: +44 203-586-2225; email:
--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email:
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