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Nomura: PBOC unlikely to raise rates after expected Fed rate hike in Sep

Chinese central bank is unlikely to raise interest rates in September after the expected rate hike by the US Federal Reserve, as China needs monetary easing at the moment, Lu Ting, chief China economist at Nomura Securities, said on Tuesday.

Even if the People’s Bank of China follows the footsteps of the Fed to raise interest rates, the raise will be moderate, maybe 5 basis point, “and the PBOC is likely announce reserve-requirement-ratio cut around the same time”, said Lu.

“Both interbank interest rates and bond yields are expected to see upward trend for some time, which will be followed by a RRR cut. Even if RRR cut does not happen, the central bank may inject large-scale liquidity via Medium-Term Lending Facility to meet market need for monetary and credit easing, said Lu.

At the moment, what’s important is, on one hand, to prevent the deleveraging campaign causing a new round of financial crisis and, on the other hand, to prevent the new monetary easing and policy stimulus bringing about new risks.

“The room left for policies is very limited, said Lu.

In regards to the Chinese yuan, “in the next two to three months, the room for yuan’s strengthening or weakening against the US dollar is limited and we expect relevant stable movement with narrow two-way fluctuation, said Lu.