Analysis | How late will China be to the US Federal Reserve-led interest rate-raising party?

The People’s Bank of China is unlikely to jump on the US Federal Reserve-led bandwagon of interest rate hikes any time soon, even though the Bank of England last week raised rates for the first time in more than a decade and a few Asian central banks are openly flirting with the idea, analysts said.

China’s central bank has left its benchmark deposit and saving rates unchanged for the last two years, regarding policy rates as an option to be used only sparingly. The PBOC is opting for nimbler tweaks to areas such as daily open market operations to influence the price of money.

However, pressure is likely to build on Beijing to do something more dramatic on the interest rate front than selling and buying repurchase agreements if other central banks, including those in Asia, speed up the “normalisation” process.

“It’s highly likely to see the first rate hike by an Asian central bank within this year,” said Zhou Hao, chief emerging markets economist at Commerzbank in Singapore. “South Korea and Philippines are two forerunners.”

At the same time, China won’t rush to touch its policy rates because the benchmark rates have lost their meaning for China’s banks and economy thanks to the country’s interest rate liberalisation moves of the past decade, Zhou said.