MNI CHINA MONEY MARKET INDEX: Concern Builds Over Q4 Slowdown
Concern about a fourth-quarter economic slowdown is building within China’s interbank money market, feeding expectations for additional monetary easing, MNI’s China Money Market Index indicated.
The People’s Bank of China is also expected to increase support for liquidity this month in response to quarter-end funding demand, the index showed.
Answering a special survey question, 49% of traders predicted economic growth would continue to slow in Q4. Some 38.8% of traders expected additional stimulus if downward pressure persists in the quarter, though 32.7% think that the PBOC is more likely to continue to wait to see the effects of measures already taken.
But while a majority of traders still anticipate an accommodative policy stance over the medium term, the percentage of traders expecting further monetary easing over the next six months fell to 67.3% from 70.2% last month, taking the policy outlook sub-index to 16.3, the highest since June. The sub-index of current policy bias edged up to 25.2 from 24.5 in August, (the lower it reads, the easier the expected policy stance) with 49% of participants foreseeing an easing stance, the lowest this year.（See MNI PBOC WATCH: Data-Dependent, No Hints Of Future Stimulus）
The PBOC seven-day repo rate outlook sub-index rose to 58.2, with 16.3% of participants expecting a lower policy rate in the coming month, compared with 8.5% in August. While 83.7% of traders insisted the rate would remain unchanged, this fell from 91.5% last month.
A trader in Guangdong pointed to a rapid deceleration of investment in August, and said policies should be enacted in order to stabilise the economy and achieve the annual growth target.
Consumption subsidies are being phased out and sales of durable goods have declined, while real estate investment posted its steepest decline since February 2020 when the pandemic broke, traders warned. （See MNI: China's GDP Faces H2 Growth Challenges）
A Shanghai trader said while some bright spots have emerged in high-tech manufacturing, weak consumption, shrinking corporate profits, and high youth unemployment all reflect tangible downward pressure on the economy.
But a trader in Jiangsu told MNI that further stimulus would come mainly from fiscal expansion, including subsidised interest rates or government bonds issuance, while monetary policy would focus on liquidity injections combined with structural tools.
LIQUIDITY CONDITIONS
The sub-index covering current liquidity conditions rose to 41.8 from 37.2 last month, the highest in seven months, with 12.2% of participants seeing tightening liquidity, the most since March.
As the end of September approaches and with week-long National Day holidays coming up, demand for cash from corporates and households rises, while quarter-end assessments to lenders can also squeeze liquidity, said a trader based in Beijing. The central bank will carry out injections to ensure a smooth month-end transition, he continued.
The recent introduction of 14-day reverse repo operations will also be helpful for liquidity, a Tianjin trader said.
The sub-index covering the PBOC’s current open market operations fell to 43.9 from 45.7, with 12.2% of traders assessing OMOs as being “too little,” the highest since April. The China liquidity outlook sub-index fell to 46.9 from last month’s 48.9, with 14.3% of traders predicting the situation would improve after month-end, compared to 10.6% last month.
The overall sub-index for PBOC OMOs outlook rose to 49 from 46.8, as 20.4% of traders saw the Bank draining liquidity after the month-end shortage passes, compared to 17.0% last month.
Some 14.3% thought the seven-day repo rate for deposit-taking institutions (DR007) will edge up next month, with the sub-index rising to 52.0 from 47.9. DR007 is benchmarked to the PBOC’s key 7-day repo rate.
Traders agreed the Bank will continue to provide liquidity via outright reverse repos next month, with the sub-index rising to 34.7 from 31.9
The survey was conducted from Sept 8 to Sept 19, with participation of 49 traders from both state-owned and joint-venture banks.
The official press release can be seen here:
