China’s Monetary Policy: Will the PBOC Hike Rates Again?

Posted July 6, 2011 by CLeahey

[private]- The People’s Bank of China increased interest rates again. The one-year lending rate will go from 6.31% to 6.56%; the one-year deposit rate will go from 3.25% to 3.5%. These changes are unsurprising, do not alter policy, and do not provide evidence of any underlying change in economic trends.

– Still, this might have been the last interest rate increase of the cycle (subject to the materialization of PBOC expectations), but the situation is in flux and another hike down the road, before the end of the year, should not surprise.

– Meanwhile, the truly important component of the central bank’s strategy, the ceiling on total lending, will remain in place, but as with interest rates, subject to revision in the critical next six months, during which it should be clear whether the Chinese economy has achieved a soft-landing or moved more dangerously closer to unacceptably low rates of real GDP growth.
7-6-11–EMG INDICATORS AND INSIGHTS _China’s Inflation and Monetary Policy_[/private]