Julian Evans-Pritchard, Senior China Economist at Capital Economics suggests that the People Bank of China (PBOC) could be delivering a hawkish signal, in light of the recent surge in the interbank rates.

Key quotes

“Short-term funding costs for banks have risen sharply during the past couple of weeks. The 7-day depository repo rate (DR007), which has been flagged by the PBOC as a key benchmark and focus of monetary policy, jumped over 100 basis points to a two-year high. Swings in interbank rates are common in China, but the recent move stands out as unusually large.

The proximate cause is a seasonal tightening of liquidity ahead of Chinese New Year, when demand for cash surges. But this is an incomplete explanation.

After all, the PBOC has the tools to keep interbank rates steady when it wants to. It could have prevented the latest jump by injecting funds via its lending facilities and daily market operations. Instead, it has been withdrawing liquidity in recent days.

At the very least, this implies that the PBOC is content to let monetary conditions tighten temporarily. But it also hints at a more hawkish stance and reinforces our expectation that policy rates will rise this year, perhaps as soon as this quarter.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

EUR/USD clings to gains above 1.0700

EUR/USD clings to gains above 1.0700

EUR/USD has regained its traction and reclaimed 1.0700 in the American trading hours. The better-than-expected Pending Home Sales data from the US seem to be helping the market mood improve and making it difficult for the dollar tı stay resilient against its rivals.

EUR/USD News

GBP/USD erases daily gains, trades below 1.2600

GBP/USD erases daily gains, trades below 1.2600

GBP/USD has reversed its direction and retreated below 1.2600 in the second half of the day. Although the dollar stays on the back foot amid improving market mood in the American session, the pair is finding it difficult to gather bullish momentum. 

GBP/USD News

Gold pressures weekly lows amid soaring equities

Gold pressures weekly lows amid soaring equities

Gold seesaws between gains and losses this Thursday, although holding near the lower end of its weekly range. XAU spiked early in the US session to post a daily high of $1,853.5, currently trading at around $1,847.

Gold News

Here’s the list of crypto exchanges that will support Terra’s LUNA hard fork

Here’s the list of crypto exchanges that will support Terra’s LUNA hard fork

Cryptocurrency exchanges are on board Terra’s LUNA hard fork and Do Kwon’s plan for the Terraform Labs token’s rebirth. Do Kwon has garnered support from leading cryptocurrency exchanges for the new Terra chain. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Forex MAJORS

Cryptocurrencies

Signatures