The Asia Report is supported by Cathay PacificThe People’s Bank of China raised lending rates by 0.25% on Tuesday on higher CPI expectations for March. But its negative real interest rate which indicates a shift from savings to investment has lasted for over a year now, according to Societe Generale analyst Wei Yao.
With PMI figures showing only limited growth in the Chinese economy, the country’s central bank has slowly been shifting away from tightening. But Yao thinks with supply chain problems stemming from the Japanese disaster, the government’s inflation worries are far from over:
The government has been using administrative measures to block pass-through of upstream inflation to downstream consumer prices, which has become increasingly unbearable to manufacturers. On the other hand, credit demand remains strong, and so loan growth could easily rebound if the central bank loosens its grip.
China is aiming to bring its real interest rate above zero in the medium term, according to Yao, meaning the interest rate minus inflation is in positive territory. So keep an eye on this chart as it will give you a little insight into just when the country’s leadership will really stop tightening.
Photo: Societe Generale