VIEW: Standard Chartered Now Look For A MLF Rate Hike In Q423

Standard Chartered note that "the PBoC already embarked on post-COVID policy normalisation in late '20, via credit tightening. It appears to be in no hurry to hike policy rates, as it sees the rise in inflation as transitory. Our analysis of past drivers of policy rate decisions also suggests no compelling reasons to adjust them in the next two years. However, we expect a move towards China's natural rate once the Fed has raised rates significantly. We now expect a 10bp hike in the Medium-term Lending Facility (MLF) rate in Q423, as recent remarks by PBoC officials indicate that current market rates are below what they see as the natural, or desired, rate. We previously expected no hikes through 2023."

• "Policy rate adjustments by the PBoC over the past decade suggest that monetary policy was overwhelmingly driven by domestic considerations. From 2010-12, inflation was the main factor behind rate decisions. In 2014-15, a growth downturn and subdued inflation prompted aggressive rate cuts. In 2017-18, the central bank hiked policy rates moderately, mainly to contain domestic leverage, against a backdrop of successive Fed rate hikes. In March-April 2020, the PBoC cut policy rates by a total of 30bp in response to the COVID-related economic downturn."
• "In this cycle, China's monetary policy normalisation began in late 2020, when growth approached to its potential level. Normalisation took the form of credit tightening, with total social financing (TSF) growth slowing to 11% in May 2021 from 13.7% in October 2020. As credit growth is now broadly in line with nominal GDP growth and the economy is showing signs of softening, we see limited room for further measures to slow credit growth."