Posted by
alfredlester on Friday, November 19, 2010 9:36:30 AM
HONG KONG (MarketWatch) –- Is China about to lift interest rates when almost everyone is on watch for just such a move? At least one analyst sees a 50-50 chance for a rate-hike this weekend.
The People’s Bank of China has a track record of doing the opposite of what’s expected. Its quarter-point hike to lending and deposit rates — announced on a Tuesday evening in mid-October, the first such move in nearly three years — took markets by surprise. And so did the PBOC’s increase to major banks’ reserve ratio requirement earlier this month.
Hong Kong back on bird flu alert
Officials in Hong Kong respond to the region's first case of the bird flu virus since 2003, diagnosed in a 59-year-old woman. Video courtesy of Reuters.
This time, however, Standard Chartered economist Stephen Green says the PBOC might have to act in line with what everyone’s expecting, as it coordinates policy with efforts to talk down inflation expectations.
“Expectations of further rate hikes are widespread and could happen at any time,” said Green in Shanghai.
Green, who expects another rate hike this year, followed by three in the first half of next year, assigns a 50% probability of the move taking place this weekend, citing what he says is a growing sense of urgency among Chinese officials.
“Inflation expectations are uppermost in the minds of the State Council,” Green said.
In a note Friday, Standard Chartered upwardly revised its forecast for gains in China’s consumer price index to 5.5% in 2011, from its earlier estimate of a 4% rise, mostly because of higher food prices fast cash.
October’s CPI showed a rise 4.4% from a year earlier, accelerating from 3.6% consumer inflation in September, the highest rate in 25 months.
Much of this was driven by higher prices for grains, vegetables and sugars, which — along with meats and edible oils — make up about 33% of the prices tracked within the CPI basket.
Data released by the Commerce Ministry earlier this week showed vegetable prices in major Chinese cities surged more than 60% in November from a year earlier, with ginger and garlic among those seeing the highest price gains.
Standard Chartered says food-price inflation will accelerate to 1.7% a month by February as the weather turns colder, then ease to around 0.5% in monthly price gains as the growing picks up.
Green says the inflationary pressures that have focused minds in Beijing is most likely the result of 2009’s massive 10 trillion yuan ($1.5 trillion) in bank lending, which helped spur a massive recovery in demand.
Meanwhile, Chinese officials have been more focused on globally loose monetary conditions, which are manifesting as imported inflation from surging inflows of speculative capital.
Expectations of an imminent interest rate hike by the PBOC weighed negatively on Chinese stocks early Friday, though the Shanghai Composite managed to recover for a gain of 0.8% in late trading.
Emerging Markets Report: Even odds for weekend Chinese rate hike: analyst