Financial China

An asymmetric interest rate hike?

  • Published 25 Mar 2010

An asymmetric hike in interest rates is looking increasingly likely because of the lopsided nature of China's frailties.

With the Consumer Price Index (CPI) rising to 2.7% year on year in February, above the benchmark deposit rate of 2.25%, China's key savings rate has turned negative. Thus, the pressure is building on the People's Bank of China (PBoC) to raise rates and these pressures are set to intensify if the CPI rises toward and above 4% year on year later in Q1 or in Q2. If that happens, the likelihood of an asymmetric hike is growing – in other words a hike of the deposit rate while leaving the lending rate steady, or a hike of the deposit rate by a larger margin than the lending rate is raised.

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