REPEAT: CHINA LIQUIDITY SURVEY: PBOC Steps Up As Lqdty Tighter

Repeats Story Initially Transmitted at 07:00 GMT Dec 21/02:00 EST Dec 21

--Yuan Depreciation Fears Seen Containing Central Bank Easing Moves

--Year-end Demand Helping Keep System Liquidity Tight

--Ten-Year China Govt Bond Yields Seen Higher Over Next 3 Mos

     BEIJING (MNI) - Traders across China's financial markets do not expect any

concerted easing by the People's Bank of China, despite this week's flood of

liquidity provision, as concern over currency depreciation remains to the fore,

the latest MNI China Liquidity Survey found.

     Despite this week's restarted PBOC open market operations, the survey saw

liquidity remaining tight ahead of the approaching calendar year-end in both the

west and China, as banks' dress up their balance sheets to prepare for year-end

regulatory requirements.

     "Liquidity is tight now, as big banks are reluctant to lend short-term

capital due to the usual seasonal factors," said a trader at a commercial banks

in Shanghai.

     The tight conditions were reflected in the latest liquidity survey, with

77.8% of traders seeing liquidity as tighter that last month, the most since Aug

2017 and up from just 17.6% who saw tighter conditions last month.

     --POLICY BIAS UNCHANGED

     But the vast majority of traders still see the overall policy bias as

unchanged, helped by the restarting of open market operations this week, despite

the short-term liquidity tightness. However, 4 of the 18 survey participants, or

22.2%, said the current policy stance was tight, compared with zero in each of

the previous three months.

     "The large injections we've seen this week are surprising, but it shows

that the PBOC is making efforts to sooth market nerves," a trader in the middle

of the country said, adding that year-end tightness will be "better than that of

last year when the deleveraging campaign was in process."

     Traders see little chance of the PBOC taking a tightening stance with the

economy facing headwinds But they are also cautious as to whether the central

bank will loosen policy too far as they look to keep the yuan in an appropriate

trading band.

     "Governor Yi said that the monetary policy would remain a domestic and

external balance, meaning the PBOC would not conduct a large easing with the

yuan under depreciation pressure," a trader in an east coast city said.

     A total of 72.2% of respondents said they see the seven-day repo rate

higher over the next two weeks, the most since Dec, 2017 and compared with 23.5%

last month. The volume weight average price of the benchmark seven-day repo rate

rose to 2.6374% on Dec 20 from 2.4390% on Dec 5. 

     --ECONOMY GLOOM

     Most poll participants remain downbeat on the outlook for the economy, with

17 respondents expressing their pessimistic outlook as economic data continues

to head lower.

     But traders, perhaps surprisingly, pessimistic about the outlook for

10-year government bonds, with 44.4% of respondents seeing the yield higher in

three months, up from 17.6% in November's poll.

     Concern on unsustainable easing and uncertain effects of government's

economic stimulus contributed to the pessimism. The yield on 10-year government

bonds in the secondary market fell to 3.3050% on Thursday from 3.3700% on Dec 3.

     The survey gauged the opinions of 18 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 Dec. 17 to Dec. 20.

--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