PBoC to stay put on rates in September? – Nomura

Analysts at Nomura Firstly expect strong growth headwinds ahead and Beijing needs low interest rates to boost growth and bolster market sentiment.

Key Quotes

“Second, the PBoC has already significantly stepped up intervention in its daily USD/CNY fixing and tightened capital controls, so there is limited concern on a weaker currency if rates are not raised.”

“Third, given the recent rise in bond yields and rising interest rate differentials between China and the US, the PBoC may have some leeway not to follow the US Fed’s hike.”

“Fourth, Beijing has already announced policy changes on easing in July and needs to convince the market of its new stance, so even a symbolic rate hike could dilute its message. That said, in case the PBoC decides to follow the Fed hike, we think it will be just a symbolic 5bp one and is likely to be combined with a RRR cut.”