The interbank money market could face pressure next month, which will see one-year medium-term lending facility maturities of CNY1.45 trillion just as seasonal demand for cash increases, a Hebei province trader said. Plans to issue additional local government bonds to swap out “hidden debt” will exacerbate the situation.
A trader from Henan said the PBOC is likely to purchase treasury bonds in the secondary market and deploy its new outright reverse repo facility to supplement liquidity. It is also likely to cut reserve requirements by 25-50bp to support fiscal expansion, a Chengdu trader said.
Some 30.2% participants predicted the Bank would increase bond trading next month, compared with 16.3% in October, taking the PBOC bond trading outlook sub-index to 39.5 from 46.5.
MNI’s special question for November showed 27.9% of participants expected the PBOC to provide liquidity support for government debt issuance while 16.3% regarded this as impossible. A trader from Fujian said liquidity is likely to remain stable through year-end thanks to PBOC support.
Some 46.5% of participants thought the outright reverse repo facility introduced in October would strengthen the PBOC’s ability to manage liquidity and ease conditions, according to answers to another special question. The PBOC deployed the facility for as much as CNY500 billion last month, and it is expected the central bank could use it still more in November and December.
When government issuance ramps up , the PBOC can use outright reverse repos to buy secondary market bonds, while in periods of lower supply, it can sell, the Henan trader said.
The PBOC can also swap bonds with non-bank financial institutions, smoothing out differences of liquidity between market segments, a Shanghai trader said.
However, some participants expected the Bank to avoid providing excess liquidity, in order to minimise the risk of trapping so-called “idle funds” inside the financial system, with 55.8% traders saying the level of open market operations would remain unchanged next month, unchanged from the last survey. Another 27.9% saw a net drain, compared with 18.6%. The overall sub-index stood at 55.8 compared with 46.5 in October.
Most traders saw a lower chance the Bank would further cut its policy rate this year. The PBOC’s 7-day repo rate outlook sub-index edged down to 52.3 from 57.0, with 95.3% expecting the policy rate to stay at 1.50% next month. Overall, market players believe the PBOC will maintain accommodative conditions over the next six months with no participant seeing a chance of tightness.
The policy rate will likely remain unchanged in the short term since economic indicators including property market data signaled an improvement in October, a Beijing trader said.
The sub-index covering current liquidity conditions eased to 32.6 from 44.2, with 44.2% of participants seeing loosening liquidity, compared to 20.9%. But 9.3% of traders, mainly from non-banking institutions, reported tighter conditions, in line with the sub-index covering the PBOC’s current interbank market operations. This fell to 40.7 from the previous 45.3, as 18.6% of traders assessed OMOs as being “too little”, compared with 9.3% last month. The remaining 81.4% saw provision “in line with” demand.
A trader from Zhejiang said funding rates had risen slightly, but still remained within reasonable ranges, pointing to the DR007 still fluctuating around its policy rate, indicating that liquidity remained ample.
The MNI China Money Market Index (MMI), formerly the MNI China Liquidity Index, has been adapted to reflect the PBOC's monetary policy. The survey was conducted from Nov 11 to Nov 22, with participation of 43 traders from both state-owned and joint-venture banks.
The official press release for the CMMI is attached:
MNI China Liquidity Index Nov Presser 2024.pdf