Tuesday, July 19, 2011

Credit Agricole: the prospects of China’s interest rates

Currency strategists at Credit Agricole believe that the People’s bank of China will pause its monetary tightening cycle in the second half of the year as the nation’s economic growth and inflation pace is slowing down.

The specialists note that Chinese monetary authorities are content with the current state on the country’s economy – so called “soft landing” as this was exactly the goal they pursued by raising borrowing costs and reserve requirements rate.

Credit Agricole notes that China now needs to finish policy tightening before the economic growth declines more sharply.

The specialists believe that the PBOC will conduct no more deposit and credit rate hikes until the next year when the economy will once again starts gaining pace. Credit Agricole thinks, however, that the bank will keep sterilizing its currency interventions by increasing required reserve ratio. The bank is looking forward to 2 such hikes until the end of 2011.

China’s second quarter GDP growth was in line with the forecasts gaining 9.5% after 9.7% advance during the first 3 months of the year.

published by FBS Holdings © 2011