Forex Flash: Chinese MPC members signal potential for 2013 rate hike - Nomura

Nomura economist Zhiwei Zhang notes that the Economic Daily News reported that, yesterday, Qian Yingyi, a member of the Monetary Policy Committee, said the economy faces intense pressure to achieve its 3.5% CPI and 13% M2 growth targets in 2013, and a rate hike is possible.

Further, Yingyi is reported to have said that the 7.5% growth target should be relatively easy to achieve, as the US economy will likely improve and domestic investment momentum remains strong. Zhang notes that he is more concerned with inflation stemming from rising labour costs and imported inflation from QE in developed countries. he writes, “In considering this, he stated that, “the central bank may take action to prevent boom and bust cycles”.”

Zhang continues to comments that Qian‟s comments reinforce his forecast for CPI inflation to rise above the official target of 3.5% in H2 and the People‟s Bank of China will hike interest rate twice. He expects GDP growth to follow a downward trend in 2013 and drop to 7.3% in H2 due to policy tightening. Zhang writes, “Our view differs significantly from the consensus, which expects interest rates to stay unchanged in 2013, inflation to average 3.1%, and GDP growth to remain flat at around 8% throughout the year.”

He adds that Qian is the dean of the School of Economics and Management at Tsinghua University and was a tenured professor at the University of California, Berkley and his comments may reflect economic reality better than official comments from the National People´s Congress. He finishes by noting that in his view, he can speak freely given his academic background.