REPEAT: MNI SURVEY: PBOC Taps Still Open On Econ Worries

Repeats Story Initially Transmitted at 06:30 GMT Oct 15/02:30 EST Oct 15

--Easing Seen Continuing At Modest Pace; Market Rates Remain Low

--Economic Outlook Remains Gloomy On Funding Difficulty

--Yield of 10-Year CGB Seen Flat To Lower In Next 3 Months

     BEIJING (MNI) - As trade tensions with the U.S. heated up and concerns over

economic growth picked up, the People's Bank of China provided 'adequate'

liquidity in September, with an increasing number of traders seeing liquidity

conditions improved on the previous month, the latest MNI China Interbank Survey

showed.

     According to the survey, traders seeing improved liquidity conditions rose

to 44.4% in September, up from 16.7% in August.

     "The (liquidity) situation was still comfortable in September, as the PBOC

knows demand for capital is soaring as lenders have to purchase newly-issued

local governments bonds to support infrastructure and prepare for quarterly

assessments," said a trader in Shanghai with one of the Big Four state-owned

commercial banks.

     --MARGINAL EASING

     The PBOC added a net of CNY425 billion through open-market operations in

September, including CNY265 billion of medium-term lending facilities, more than

the net CNY145.5 billion in August.

     As a result, no survey respondents thought monetary policy was being

conducted with a tightening bias. It is the third month in four the survey has

shown a zero balance since June, with just August's 5.6% looking for a

tightening an exception.

     "The PBOC's moves are mainly to meet demands of repaying maturing liquidity

instruments and reducing funding difficulties in the real economy, so the

extreme easing seen in June may not happen again," a trader at a city commercial

bank in an eastern region said, noting that money market rates have been rising.

     However, fewer traders now see room for the seven-day repo to move higher,

with one in three survey respondents seeing the rate fall over the next two

weeks. That's up from 16.7% in the previous survey. Half of the respondents saw

no change in the rate.

     The volume-weighted average rate of the benchmark seven-day repo traded in

the interbank market averaged 2.65% in September, about 10bps higher than in

August.

     -GLOOMY OUTLOOK

     The optimism over the economic outlook remained bleak in September. Over

90% of respondents thought the economy had worsened or stayed the same in the

month. Of the 18 traders in the MNI survey, only one said current economic

conditions have recovered.

     "If you look at the main data indicators, the economy is getting worse,"

said a trader with a commercial bank in Beijing. 

     "The current problem is the low risk appetite of lenders, under pressure of

deleveraging and bond defaults, has largely blocked the funding to small

businesses," he continued. "Whether unlocked liquidity gets into the real

economy, we still need time to see."

     With concerns over growth to the fore, just 11.1% of survey respondents

said they see the yield on 10-year China government bonds (CGB) moving higher

over the next three months, the lowest since Feb, 2015 and down from 38.9% in

August's poll. Just under 40% saw the 10-year yield lower over the period.

     The survey gauged the opinions of 18 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 from Oct 8 to Oct

12.

--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