PBOC unlikely to follow US Fed interest rate hike

Source: Xinhua | 2018-09-27

China’s central bank will keep a firm monetary policy stance and is unlikely to follow a possible interest rate hike by the US Federal Reserve, analysts said.

The Fed is set to announce its interest rate decision today Beijing time, with analysts widely anticipating that it will lift interest rates again.

The People’s Bank of China is likely to leave its policy rates flat after the possible Fed rate hike and will manage liquidity through open market operations, said Wen Bin, a researcher with China Minsheng Bank.

Nomura analyst Lu Ting also expects the PBOC to maintain its rates, adding that low interest rates are needed to stabilize economic growth amid headwinds, while interest rate differentials between China and the US give the PBOC some leeway in not following the Fed’s hike.

As the exchange rate of the yuan remains generally stable against the greenback, there will be limited concern about a weaker currency if the PBOC does not follow suit with raising rates, Lu said.

The PBOC has also reiterated its prudent monetary policy stance, with its policy fine-tuning set to counter a seasonal liquidity squeeze and ramp up support for the real economy amid external headwinds.

Using an expanded monetary policy toolkit, including reverse repos and a medium-term lending facility, the central bank intends to “keep liquidity at a reasonable and ample level.”

Lian Ping, chief economist with the Bank of Communications, has ruled out the possibility of massive liquidity injection by the PBOC but said there was still room for a targeted reduction in commercial banks’ reserve requirement ratios.