MNI CHINA LIQUIDITY SURVEY: Liquidity Levels Boosted By PBOC

--Current Liquidity Conditions Seen Improved On Last Month By 68.8% Responders

--Economic Outlook Still Gloomy With Indicators Weak; 10-year CGB Yield Seen

Lower

--Repo Rates Seen Higher As Chinese New Year Holiday Looms

     BEIJING (MNI) - The People's Bank of China maintained ample cash in the

interbank market through January, ensuring there was no shortages in the run up

to the Chinese New Year celebrations, with more than two-thirds of respondents

to the latest MNI China Interbank Liquidity Survey seeing improved liquidity

conditions compared to December.

     The January MNI China Liquidity Survey saw the percentage of traders seeing

liquidity conditions as improved on the previous month rising to 68.8%, up from

zero in the previous survey.

     The PBOC was in accommodative mode through January, cutting the reserve

requirement ratio by 100 basis points, launching a new Targeted Medium-term

Lending Facility with a lower rate, whilst pushing through a targeted RRR cut.

According to MNI calculation based on PBOC statements, liquidity injection via

from these actions totalled more than CNY2.1 trillion.

     --FURTHER EASING

     Not only did the survey highlight the increased liquidity, but it also

showed that financial markets believed the central bank was clear in its policy

guidance, with 43.8% of respondents expressing increased clarity in guidance

through January -- the highest number since Feb 2017.

     With ample liquidity in the system, 11 out of 16 traders (68.8%) said the

PBOC's current policy bias was for easing, compared with only one who thought so

last month.

     "Liquidity has improved this month thanks to the RRR cut and TMLF

operation," said a trader with a city commercial bank in middle of the country,

noting both the clarity and flexibility of PBOC policy following the launch of a

series of targeted tools.

     --LOWER RATES

     Money market rates were lower in January on the back of PBOC action. The

volume-weighted average rate of the benchmark 7-day repo traded in the interbank

market, considered the best indicator of general liquidity, averaged at 2.4695%

in the first 28 days of Jan, well below the average 2.6527% seen in December.

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

56.3% survey respondents seeing the rate higher over the next two weeks,

although below the 72.2% who foresaw higher repo rates in the previous survey.

     "The repo rate will go up in the two weeks over the Chinese New Year

holiday, considering the increased liquidity demand," said a trader with a

second-tier commercial bank.

     Demand for cash soars before the annual Spring Festival break, as companies

pay cash bonuses to staff, migrant workers take their cash home, and people

boost spending on travelling, shopping and gifts.

     --ECONOMIC OUTLOOK

     The economic outlook remains bleak, with 56.3% traders see economy getting

worse in coming months, although that is marginally lower than the 61.1% last

month.

     "Economic indicators are negative even though the PBOC is trying hard to

expand credit," a Shanghai trader with one of the big state-owned banks said,

"it (economic recovery) depends on further fiscal stimulus, and also the

progress of the trade talks," he continued.

     With the economic outlook still gloomy, 62.5% of survey respondents see the

yield on 10-year government bonds (CGB) moving lower over the next three months,

the highest number since Feb 2015 and up from 38.9% who saw lower yields in

December's poll.

     The survey gauged the opinions of 16 traders with financial institutions

operating in the Chinese 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 Jan 24 to Jan 28.

--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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