Posted on February - 06 - 2011
China: One-year lending raised, real rates still low
The central bank of China raised the one-year lending rate for the third time in less than four months. The 25 basis points increase brings the key benchmark rate to 6.06%, the highest level since October 2008. Despite this latest move, we still think that monetary policy remains accommodative.
As today’s Hot Chart shows, the one-year lending rate remains well below the level of October 2008 relative to non-food CPI inflation. At just under 4%, real interest rates in China remain more than 100 basis points below their decade average of 5.12%.
This means that there is scope for a further increase in lending rates in the coming months accompanied with an appreciating currency. At this juncture we note that the non-deliverable forwards are currently pricing an appreciation of the Chinese currency of 2.5% over the next twelve months. We find this to be rather complacent. The last time China raised interest rates by more than 70 basis points, the CNY strengthened by around 8% vs. the USD in the following year.
Similar Posts:
- Construction Spending Increases 0.7% in October
- ECB preview: Decoding a July hike, “Very close monitoring”
- Norges Bank forecasts higher rates
- Obama Seeks Chinese Currency Changes
- Holiday Currency
