From Reuters:
China is loosening some areas of monetary policy as economic growth slows. But that is not a signal to buy fixed-rate bonds – the policy shift could eventually mean higher interest rates, analysts say.
As China curbs the appreciation of the yuan and expands commercial banks’ corporate lending quotas, it may gain room to bring real interest rates, adjusted for inflation, closer to positive territory.
“Slower yuan appreciation and the relaxation of loan controls could actually be a prelude for the central bank to shift monetary tightening toward interest rate policy later this year,” says Felix Sun, a fixed-income analyst at UBS in China.
In most economies, higher interest rates would be unlikely to accompany monetary easing. But in China’s complex but highly regulated money markets, where the central bank still resorts to elements of central planning to control loan growth, they are a distinct possibility.
Read also China loosens lending controls, fearing slowdown from AP.
