International | Oct 18 2007
By Chris Shaw
Just last week the People’s Bank of China (PBOC) announced it was lifting the reserve requirements for banks by 50 basis points from October 25th and ANZ Bank expects the move will soon be followed by an increase in official interest rates.
The bank suggests such an announcement could come as early as this Friday and will be in response to continuing inflationary pressures. On the bank’s estimates the inflation rate in September may have increased to as much as 7.0% as while pork prices have eased from recent highs the prices of vegetables, poultry and eggs are all increasing in the country.
It also points out it has been a trend for the PBOC to lift interest rates soon after any issue of more than 100bn renminbi (RMD) in central bank notes and an issue of 150bn RMD was made on October 11th.
In terms of exact timing of the PBOC’s move ANZ sees some uncertainty as there are some economic data out over the next week or so that will give a better idea of the impact of the previous rate increase in September.
Another potential delay comes from the fact the Communist Party Congress was held on October 15th and in the bank’s view the government is likely to allow a few days before making any major policy announcement.
There is risk in such an approach though, as the bank points out any delay in adjusting monetary policy could mean a more significant adjustment is needed when the change is made, so if no movement was made on rates until late in November the PBOC may then be forced to move by 0.54% rather than its traditional 0.27% adjustment.
Either way, the focus remains on further increases in interest rates in China as the government attempts to slow down the economy.
