Chinese Central Bank Tipped to Raise Money Market Rates Moderately in 2018

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A new survey from Bloomberg sees the People’s Bank of China applying modest hikes to money market rates this year, as its deleveraging campaign continues and it seeks to maintain consistency with US policy.

According to the Bloomberg survey of 31 analysts from 15 – 27 December, PBOC is expected to raise interest rates on reverse repo agreements by five basis points on three occasions in 2018 starting in the first quarter.

The survey sees the current rate of 2.5% rising to 2.55% in the first quarter, 2.6% in the second quarter, before a final increase to 2.65% in the fourth quarter.

This pattern of increase would keep Chinese rates roughly in line with changes by the US Federal Reserve, which is expected to push through with three hikes itself this year.

The Chinese hikes will also serve to keep liquidity under wraps, and prevent undue capital outflows.

The projected rate of increase for 2018 is nonetheless below the pace of hikes in 2017, when Beijing made two 10 basis point hikes in the first quarter, followed by a five basis point increase in December.

Another survey by Bloomberg does not see Chinese policymakers making any changes to the benchmark rate, which determines borrowing costs across the economy, until early 2020.

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