MNI China Liquidity Survey: PBOC Keeps Liquidity Ample In Nov

--PBOC Skips Daily Reverse Repo Operations On Weak Yuan Concerns

--Benchmark Seven-day Repo Rate To Stay Low On Adequate Liquidity

     BEIJING (MNI) - Liquidity remained ample across China's interbank market in

November, despite the People's Bank of China refraining from revere repo

operations for 24 straight trading days, with 12 out of 17 traders in the latest

MNI China Liquidity Survey seeing conditions unchanged from October.

     The Survey shows 70.6% of respondents saw liquidity unchanged, up from

53.3% in October, where conditions were already deemed quite loose. But there

was some divergence from last month's reading, with 17.6% of participants seeing

conditions tighten, up from zero.

     "The (liquidity) condition is still in a comfortable range as it is not

hard to borrow money in the interbank market," a Shanghai trader told MNI. "But

the PBOC has suspended its reverse repo operations, which indicates the central

bank is still controlling the floodgates to stabilize leverage and prevent

speculative capital going into sectors including the property market," he added.

     As of Nov 27, the PBOC had drained total of CNY520 billion since Oct 26,

having skipped its daily reverse repo operations (RROs)for 23 consecutive

working days, the longest period of abstention since the PBOC first announced

their daily conduct in Feb, 2016.

     Traders attributed the suspension of RROs to the ample liquidity inside the

system after the PBOC's 4 required reserve ratio cuts this year and to the small

current volume of maturing RROs.

     --SHORT-TERM CAPITAL

     Others see the central bank managing liquidity in order to stabilise

short-term rates and offer some support to the yuan ahead of a key meeting

between China's President Xi Jinping and U.S. President Donald Trump later this

week.

     "The PBOC needs to stabilize the yuan before the G20 summit, probably one

of the reasons why it tightens control on liquidity these days," a trader at a

commercial bank in the middle of the country said, adding the PBOC also needs to

consider the risk of capital outflow.

     Despite some traders seeing conditions tighter than last month, none of

those surveyed saw a current policy bias towards tightening, the third

consecutive zero reading.

     "Considering the central bank is striving to expand credit, ample liquidity

is necessary," the same commercial bank trader said.

     A total 13 out of 17 see the seven-day repo remaining at the current level

or lower still over the next two weeks. To date in November, the volume-weighted

benchmark seven-day repo averaged 2.6037%, slightly higher than October's

2.5946%.

     --CREDIT EXPANSION

     The economic outlook remains gloomy, with 9 of the 17 traders, 52.9%,

saying current economic conditions have deteriorated.

     "Recent economic indicators have shown the economy is getting worse,

particularly the sharp decline of total social finance growth in October," said

a trader with a commercial bank in eastern China.

     For longer-term rates, 35.3% of respondents see the yield on 10-year

government bonds (CGB) moving lower over the next three months, down from 46.7%

of respondents last month but up from 15.8% in last November's poll.

     The survey gauged the opinions of 17 traders with large 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 between Nov 23 to

Nov 27.

--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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