Remember how every man and his dog were speculating about an imminent interest rate hike in China?
Well it seems most analysts have now changed their tune.
From Bloomberg on Monday:
China’s benchmark interest-rate swaps fell for the third day on speculation policy makers will refrain from raising interest rates before year-end. Bonds rose.
Banks’ reserve requirements and central bank bill sales may be better tools for controlling inflation than interest rates because higher rates may attract capital inflows and pressure repayment of local borrowings, reported the People’s Daily today, citing Ba Shusong, a researcher for the nation’s cabinet.
The amount of cash lenders must set aside as reserves will rise by 50 basis points from today, the sixth increase this year.
“We don’t see a further interest-rate hike by the end of the year as the central bank already increased the reserve requirement ratio,” said Emmanuel Ng, a strategist in Singapore at Oversea-Chinese Banking Corp. “Bill auctions, where yields haven’t been that aggressive, show there’s no rush to raise interest rates.”
Market consensus is now increasingly suggesting that China will restrict itself to quantitative tightening rather than deploy any outright interest rate hikes to cool inflation. And, if rate rises were to come, they would only be very gradually implemented.