China’s benchmark one-year lending rate will increase to 6.06 percent from 5.81 percent, effective tomorrow, the People’s Bank of China said on its website today. Parry made the comments in a telephone interview.
“A rate rise was expected, but given they delayed to the end of Chinese New Year, it created anxiety over the potential severity. Now that uncertainty is removed, the markets can focus on the January trade, and the producer prices and consumer-price data next week.
“At least there’s a bit more stability on a sentiment basis. I think it’s going to wash through and we can carry on.
“Markets will knee-jerk on this, particularly the Western markets. Sitting out here on the ground, we knew this was coming. Look at the growth in money supply.
“We all knew they had to tighten monetary policy, which increases the cost of capital. They’re going to increase the reserve ratio further given the liquidity lag of Chinese New Year. If you increase the reserve ratio requirement, you lock up liquidity, decreasing access to capital.
“You can probably expect to see more micro management on the cost of capital. I don’t think you’ll see another rate increase this quarter. They will employ specific sector-cooling measures.”
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