Ben Simpfendorfer, an economist at Royal Bank of Scotland Plc, 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.
Simpfendorfer commented in a note distributed after the central bank’s decision.
“The People’s Bank of China may shortly hike its policy rate, the one-year lending rate. But today’s decision coupled with the recent fall in vegetable prices also provides reason to delay until early first quarter.”
“That said, the economy would benefit from higher rates. Exports are surprisingly resilient. The combination of easy credit, a property bubble in many cities, and worsening structural inflation all argue for higher rates to cool growth and prevent inflation expectations from deteriorating. However, the imbalances in the composition of growth, especially the reliance on credit and construction, are a restraint on more decisive action.”