China could tighten in mid-2018

Peter A Rosenstreich Swissquote Bank Ltd

China’s economy has showed a slight deceleration, but nothing dramatic. Still, to keep capital from flowing elsewhere, the People’s Bank of China might tighten interest rates in mid-2018.

Chinese October retail sales increased 10.0% annually, below expectations of 10.5%. Fixed investment rose 7.3%, and industrial production increased 6.2% - both behind expectations. So growth is slowing, not surprisingly, given the central bank’s war on shadow lending and pollution. China’s 10-year government bond yield has risen to the highest level in three years, despite injections of CNY 150 billion via reserve repos.

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This has allowed CNY to gain, with USD/CNY falling to 6.64. Stronger than expected trade growth continues to support the economy which we don’t see slowing significantly in 2018.
see the PBoC flowing the fed lead with tighter rates in mid-2018.

Author

Peter A Rosenstreich

Swissquote Bank Ltd

Peter Rosenstreich is Swissquote Bank’s Head of Market Strategy and manages the global strategy desk; he has held various positions in several banking institutions in the United States, Europe & Asia.

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