Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada, comments on the People’s Bank of China’s decision to raise banks’ required deposit reserve ratio today. The central bank will raise the ratio by 50 basis points effective Dec. 20.
“It’s hard to say whether this move makes a rate hike less likely in the next few days, but we think Beijing will likely want to use all of the policy tools at its disposal to get inflation under control.”
“Inflation is shaping up to be the primary challenge facing policy makers in coming months, and it makes sense for them to bring out the big guns to deal with this issue. So we still expect to see an increase in policy rates by the end of the year, with more to come in 2011.
“Faster currency appreciation will also help contain price pressures, with robust trade data today suggesting China’s export sector is well placed to tolerate some yuan strength.”