MNI CHINA LIQUIDITY SURVEY: PBOC Liquidity Tightens In April

--Liquidity Conditions Deteriorating, Money Mkt Rates More Volatile

--Positive View On Economy Performance Surges; 10-Year CGB Yield To Rise 

--Policy Stance Continues To Tighten; No Need Seen For Q2 RRR Cut 

     BEIJING (MNI) - As China's economy shows signs of steadying and fiscal

stimulus measures kick in, the People's Bank of China has slowed the flow of

liquidity into the market, the latest MNI China Liquidity Survey shows.

     Liquidity tightened again in April, according to interbank traders, with

64.3% of survey respondents noting a deterioration on the previous month --

slightly lower than the 71.4% who saw tighter conditions in March.

     Although the majority saw conditions tighter in April, just over a third of

those surveyed saw conditions either unchanged or easier.

     Not all those survey respondents who saw tighter conditions in April

thought the PBOC had an active tightening bias in its policy, with 57.1% seeing

it unchanged. However, 35.7% of replies saw a tightening of the policy stance,

the highest number since November 2017.

     Traders were agreed that monetary policy is unlikely to see a sharp U-turn

from the previous easing stance, as the economy remains fragile and Beijing's

proactive fiscal policy needs coordination with the PBOC.

     -POSITIVE ECON EXPECTATION

     The vast majority surveyed saw a pick-up in the economy through April, with

85.7% seeing improved conditions, the highest number since the survey started in

May, 2014. None of traders surveyed thought the economy was getting worse.

     As a result, 69.2% of respondents saw 10-year China Government Bond yields

higher over the next three months, the highest since April, 2017.

     One Shanghai trader noted that the positive economic expectations would

push yields higher for a while, but they would reverse as the overly optimistic

mode gets corrected, underlining doubts among some traders over the

sustainability of the recovery.

     "Although the whole situation seems improved, the structural problems are

still there," said one trade, concerned the export-led bounce would not last.

     -PRUDENT STANCE

     Some traders saw the slowing of PBOC liquidity injections (18 straight days

of no injections from March 20) and volatility in money market rates through

April as indicating an adjustment in the policy stance.

     "The latest politburo meeting mentioned again the target of structural

deleveraging and the MPC meeting of the PBOC also stressed controlling the

floodgate, meaning further easing may be not seen in short term," a shanghai

trader said.

     Most traders saw upside room for the seven-day repo rate, with 64.3% of

those surveyed seeing the rate higher over the next two weeks, up from the 42.9%

who foresaw higher repo rates in the previous survey.

     Almost two-thirds of participant saw only a slim chance for the PBOC to cut

the RRR in Q2, as better than expected money supply and total social financing

data reduced the necessity.

     The survey gauged the opinions of 14 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 April17 to April 22.

--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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