Another special question showed that 53.5% of participants anticipated additional fiscal stimulus of around CNY2 trillion, while 30.2% thought its scale would exceed expectations and another 16.3% considered it may fall short.
Headline MMI survey results showed most traders expected a continuing easy bias in central bank liquidity operations over the coming month, after the PBOC cut its key 7-day reverse repo rate by 20bp last month.
Some 67.4% of participants saw liquidity remaining steady, while 27.9% predicted further loosening. However, the China liquidity outlook sub-index edged up to 38.4, compared with 30.2 last month, indicating concern over a possible liquidity shortage.
“The People’s Bank of China has injected substantial liquidity this month, and the recent rate cut also helps to maintain a benign funding environment. But it remains uncertain whether upcoming additional fiscal moves will lead to new government bond issuance, as the scale and magnitude are still unknown, so whether this will disrupt market liquidity remains to be seen,” a trader in Anhui province said. (See MNI INTERVIEW: PBOC To Cut Rates Further, Target 2% CPI)
The PBOC's 7-day repo rate outlook sub-index edged down to 57.0 from the previous 59.3, with 86.0% expecting the policy rate would be maintained at 1.50% for a while, though 14.0% saw an official cut as quick by as soon as in one month. Overall, market players believe the PBOC will maintain an easing bias over the next six months with no participant seeing a chance of tightness.
The MNI China Money Market Index (MMI) was formerly the MNI China Liquidity Index, and has been adapted to reflect the PBOC's monetary policy. The survey was conducted from Oct 14 to Oct 25, with the participation of 43 traders from both state-owned and joint-venture banks.
The sub-index covering current liquidity conditions eased significantly, to 44.2 from 86.0, with 20.9% of participants seeing loosening liquidity, compared to only 7.0% last month. But 9.3% of traders, mainly from medium and small-sized banks, reported tighter conditions, particularly for short-term fund.
"Liquidity has eased significantly compared to last month, mainly due to increased funding from major banks after the large quarter-end liquidity demand faded, and with less government bond issuance this month,” a trader in Hebei province noted. (See MNI INTERVIEW 2: China Fiscal Expansion Crucial, RRR Cut Eyed)
The sub-index covering the PBOC’s interbank market operations climbed to 45.3 this month from the previous 31.4, as 90.7% of the traders assessed open market operations as being “in line with” demands. The other 9.3% thought provision was “too little.”
"Since late October, a divergence in funding demand has emerged as non-banks lacked funds. Currently, the leverage ratio in the interbank market is rising, and funding demand is increasing,” A Shanghai trader said.
Most participants thought the 7-day repo rate for deposit-taking institutions (DR007) will remain low next month, with the sub-index sliding to 54.7 from 84.9, and 72% of traders expected the rate to remain at its current level, after it averaged 1.64% so far this month, the lowest monthly averaged level this year and compared to 1.98% last October. DR007 is a money market rate benchmarked by the PBOC’s key 7-day repo rate.
The sub-index covering the PBOC’s open market operations over the coming month showed one fourth of traders expected net injections, but 55.8% said the scale of OMO would remain unchanged compared with only 4.7% last month. As a result, the sub-index stood at 46.5 compared with 69.8 in September.
For further details contact sales@marketnews.com. Full press release attached: